8-K
Innovative Industrial Properties Inc (IIPR)
UNITEDSTATES
SECURITIESAND EXCHANGE COMMISSION
WASHINGTON,D.C. 20549
FORM8-K
CURRENTREPORT
Pursuantto Section 13 or 15(d)
ofthe Securities Exchange Act of 1934
Dateof Report (Date of earliest event reported): May 6, 2020
InnovativeIndustrial Properties, Inc.
(Exactname of registrant as specified in its charter)
| Maryland | 001-37949 | 81-2963381 |
|---|---|---|
| (State or Other Jurisdiction of Incorporation) | (Commission File No.) | (I.R.S. Employer Identification No.) |
1389Center Drive, Suite 200
ParkCity, Utah 84098
(Addressof principal executive offices, including zip code)
Registrant’stelephone number, including area code: (858) 997-3332
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications<br> pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ¨ | Soliciting material<br> pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ¨ | Pre-commencement communications<br> pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ¨ | Pre-commencement<br> communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
| Securities<br> Registered pursuant to Section 12(b) of the Act: | ||
|---|---|---|
| Title<br> of each class | Trading<br> Symbol(s) | Name<br> of each exchange on which registered |
| Common Stock, par value $0.001 per share | IIPR | New York Stock Exchange |
| Series A Preferred Stock, par value $0.001 per share | IIPR-PA | New York Stock Exchange |
| Item 2.02 | Results of Operations and Financial Condition. | |
| --- | --- |
On May 6, 2020, Innovative Industrial Properties, Inc. issued a press release regarding its financial results for the first quarter ended March 31, 2020. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.
The information contained in this Current Report, including Exhibit 99.1 referenced herein, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. Such information shall not be incorporated by reference into any filing of Innovative Industrial Properties, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.
| Item 9.01 | Financial Statements and Exhibits. |
|---|---|
| (d) | The following exhibit is furnished herewith: |
| --- | --- |
| Exhibit Number | Description of Exhibit |
| --- | --- |
| 99.1 | Press<br> release issued by Innovative Industrial Properties, Inc. on May 6, 2020. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date:<br> May 7, 2020 | INNOVATIVE<br> INDUSTRIAL PROPERTIES, INC. | |
|---|---|---|
| By: | /s/ Catherine Hastings | |
| Name: | Catherine<br> Hastings | |
| Title: | Chief<br> Financial Officer, Chief Accounting Officer and Treasurer |
Exhibit 99.1
Innovative Industrial Properties ReportsFirst Quarter 2020 Results
Acquisitions Drive 210% Q1 Total Revenues,249% Q1 Net Income and 236% Q1 AFFO Growth Year-over-Year
SAN DIEGO, CA – May 6, 2020 – 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 quarter ended March 31, 2020.
First Quarter 2020 and Year-to-Date Highlights
Financial Results and Financing Activity
| · | IIP generated total revenues of approximately $21.1<br>million in the quarter, representing a 210% increase from the prior year’s first quarter. |
|---|---|
| · | IIP recorded net income available to common stockholders<br>of approximately $11.5 million for the quarter, or $0.72 per diluted share, and adjusted funds from operations (AFFO) of approximately<br>$17.8 million, or $1.12 per diluted share. Net income available to common stockholders and AFFO increased by 249% and 236% from<br>the prior year’s first quarter, respectively. |
| --- | --- |
| · | IIP paid a quarterly dividend of $1.00 per share on<br>April 15, 2020 to common stockholders of record as of March 31, 2020, representing an approximately 122% increase over the first<br>quarter 2019’s dividend. |
| --- | --- |
| · | In January, IIP completed an underwritten public offering<br>of 3,412,969 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional<br>445,170 shares, resulting in net proceeds of approximately $239.6 million. |
| --- | --- |
| · | In January, IIP issued shares of common stock for<br>net proceeds of approximately $78.2 million under an “at-the-market” equity offering program. |
| --- | --- |
Investment Activity
| · | From January 1, 2020 through today, IIP acquired nine<br>properties, totaling approximately 1.1 million rentable square feet (including expected rentable square feet upon completion of<br>properties under development), located in Colorado, Florida, Illinois, Massachusetts, Michigan, Ohio and Virginia. |
|---|---|
| · | These nine properties represented an aggregate investment<br>by IIP of approximately $202.1 million (consisting of purchase prices and development / tenant reimbursement commitments, but<br>excluding transaction costs). |
| --- | --- |
| · | In these transactions, IIP established a new tenant<br>relationship with Parallel (the corporate parent company of Surterra Wellness), while expanding existing tenant relationships<br>with Ascend Wellness Holdings, LLC, Cresco Labs Inc., Green Leaf Medical, LLC, Green Thumb Industries Inc. and LivWell Holdings,<br>Inc. |
| --- | --- |
Balance Sheet Highlights (at March 31, 2020)
| · | Approximately $108.3 million in cash and cash equivalents<br>and approximately $272.9 million in short-term investments, totaling approximately $381.2 million. |
|---|---|
| · | No debt, other than approximately $143.7 million of<br>unsecured debt, consisting solely of 3.75% exchangeable senior notes maturing in 2024, representing a fixed cash interest obligation<br>of approximately $5.4 million annually, or approximately $1.3 million quarterly. |
| --- | --- |
| · | 13% debt to total gross assets, with approximately<br>$1.1 billion in total gross assets. |
| --- | --- |
Rent Deferrals (as of May 6, 2020)
| · | IIP has undertaken in-depth discussions with each<br>of its tenants in March and April as they navigate this unprecedented pandemic. |
|---|---|
| · | In light of those discussions, IIP worked with three<br>of its 21 tenants to provide temporary rent deferrals, structured to apply a portion of the security deposit IIP holds under each<br>lease to pay April rent in full, defer rent for May and June in full, and provide for the pro rata repayment of the security deposit<br>and deferred rent over an 18 month time period starting July 1. |
| --- | --- |
| · | Pursuant to these amendments, a total of $743,000<br>of security deposits that IIP holds in cash were applied to the payment of rent for April; and a total of approximately $1.5 million<br>in rent was deferred for May and June. The total of this amount, $2.3 million, represents approximately 3% of IIP’s total<br>revenues as reported for the three months ended March 31, 2020, annualized. |
| --- | --- |
“One of the pillars of our business strategy has consistently been a conservative, flexible balance sheet, and we believe we are exceptionally well positioned to not only weather this unprecedented health crisis and economic disruption, but to continue to make real estate investments on a long-term basis with best-in-class tenant operators,” said Alan Gold, Executive Chairman of IIP. “We remain steadfast in our support of this industry and its bright long-term future, and are working every day through this crisis with our tenant partners toward continuing to build a tremendous future forward of growth and strength for many years to come. When we overcome this crisis through the collective ingenuity of our top medical professionals and researchers, the regulated cannabis industry will continue to thrive and be one of the top drivers of growth and good jobs across the country.”
COVID-19 Regulatory Update
In the vast majority of states, state and local governmental authorities have recognized both medical-use and adult-use cannabis operations as “essential businesses” per state guidelines, allowing them to remain open and operational, extending as well to the supply chain of the regulated cannabis industry, including cultivation, processing, distribution and dispensary activities. State and local governmental authorities and regulated cannabis businesses have taken additional measures to ensure the safety and well-being of employees, patients and consumers, including but not limited to restrictions associated with social distancing requirements and additional levels of protection for medical cannabis patients with more vulnerability to health complications with COVID-19.
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, 2020 through May 6, 2020 (dollars in thousands):
| State | Closing Date | Rentable Sq. Ft.^(1)^ | Purchase Price^(2)^ | Additional<br> Investment | Total<br> Investment | ^^ | ||||
|---|---|---|---|---|---|---|---|---|---|---|
| Pennsylvania | January 14, 2020 | N/A | $ | N/A | $ | 4,500 | $ | 4,500 | ^(3)^ | |
| Virginia | January 15, 2020 | 82,000 | 11,740 | 8,010 | 19,750 | ^(4)^ | ||||
| Arizona | January 16, 2020 | N/A | N/A | 2,000 | 2,000 | ^(5)^ | ||||
| Ohio | January 24, 2020 | 50,000 | 10,600 | 1,945 | 12,545 | ^(6)^ | ||||
| California | January 28, 2020 | N/A | N/A | 1,250 | 1,250 | ^(7)^ | ||||
| Ohio | January 31, 2020 | 21,000 | 2,900 | 4,300 | 7,200 | ^(8)^ | ||||
| Colorado | Various | 8,000 | 3,300 | 850 | 4,150 | ^(9)^ | ||||
| Pennsylvania | February 19, 2020 | N/A | N/A | 6,000 | 6,000 | ^(10)^ | ||||
| Massachusetts | February 24, 2020 | N/A | N/A | 4,000 | 4,000 | ^(11)^ | ||||
| Maryland | March 3, 2020 | N/A | N/A | 5,500 | 5,500 | ^(12)^ | ||||
| Illinois | March 6, 2020 | 231,000 | 9,000 | 41,000 | 50,000 | ^(13)^ | ||||
| Florida | March 11, 2020 | 373,000 | 35,300 | 8,200 | 43,500 | ^(14)^ | ||||
| Massachusetts | April 2, 2020 | 199,000 | 26,750 | 22,250 | 49,000 | ^(15)^ | ||||
| Minnesota | April 10, 2020 | N/A | N/A | 1,060 | 1,060 | ^(16)^ | ||||
| New York | April 10, 2020 | N/A | N/A | 360 | 360 | ^(17)^ | ||||
| Michigan | April 22, 2020 | 115,000 | 5,000 | 11,000 | 16,000 | ^(18)^ | ||||
| Totals | 1,079,000 | $ | 104,590 | $ | 122,225 | $ | 226,815 | ^^ |
2
| (1) | Includes expected rentable square feet at completion<br>of construction for certain properties. |
|---|---|
| (2) | Excludes transaction costs. |
| --- | --- |
| (3) | The amount relates to a lease amendment which increased<br>the tenant improvement allowance under a lease at one of IIP’s Pennsylvania properties by $4.5 million to a total of approximately<br>$8.3 million. As of May 6, 2020, we had funded $5.6 million of the tenant improvement allowance. |
| --- | --- |
| (4) | The tenant is expected to complete tenant improvements<br>at the property, for which IIP agreed to provide reimbursement of up to approximately $8.0 million. As of May 6, 2020, IIP funded<br>approximately $6.4 million of the reimbursement. |
| --- | --- |
| (5) | The amount relates to a lease amendment which increased<br>the tenant improvement allowance under a lease at one of IIP’s Arizona properties by $2.0 million to a total of $5.0 million.<br>As of May 6, 2020, IIP had funded $5.0 million of the tenant improvement allowance. |
| --- | --- |
| (6) | The tenant is expected to complete tenant improvements<br>at the property, for which IIP agreed to provide reimbursement of up to approximately $1.9 million. As of May 6, 2020, IIP had<br>funded none of the tenant improvement allowance. |
| --- | --- |
| (7) | The amount relates to a lease amendment which increased<br>the tenant improvement allowance under a lease at one of IIP’s California properties by approximately $1.3 million to a<br>total of approximately $6.0 million. As of May 6, 2020, IIP had funded approximately $6.0 million of the tenant improvement allowance. |
| --- | --- |
| (8) | The tenant is expected to complete tenant improvements<br>at the property, for which IIP agreed to provide reimbursement of up to $4.3 million. As of May 6, 2020, IIP had funded approximately<br>$3.0 million of the tenant improvement allowance. |
| --- | --- |
| (9) | The portfolio consists of two retail properties, with<br>one property closing on February 19, 2020 and one property closing on February 21, 2020. The tenant is expected to complete tenant<br>improvements at one of the properties, for which IIP agreed to provide reimbursement of up to $850,000. As of May 6, 2020, IIP<br>had funded approximately $49,000 of the tenant improvement allowance. |
| --- | --- |
| (10) | The amount relates to a lease amendment which increased<br>the tenant improvement allowance under a lease at one of IIP’s Pennsylvania properties by $6.0 million to a total of $16.0<br>million. As of May 6, 2020, IIP had funded approximately $9.5 million of the tenant improvement allowance. |
| --- | --- |
| (11) | The amount relates to amendments to a lease and development<br>agreement which increased the construction funding at one of IIP’s Massachusetts properties by $4.0 million to a total of<br>$27.5 million. IIP also canceled the optional commitment to provide construction funding of $4.0 million for the tenant at one<br>of IIP’s Pennsylvania properties. As of May 6, 2020, IIP had funded approximately $26.0 million of the construction funding<br>at the Massachusetts property. |
| --- | --- |
| (12) | The amount relates to a lease amendment to provide<br>a tenant improvement allowance under a lease at one of IIP’s Maryland properties for $5.5 million. As of May 6, 2020, IIP<br>had funded approximately $568,000 of the tenant improvement allowance. |
| --- | --- |
| (13) | The tenant is expected to complete tenant improvements<br>at the property, for which IIP agreed to provide reimbursement of up to $41.0 million. As of May 6, 2020, IIP had funded approximately<br>$8.1 million of the tenant improvement allowance. |
| --- | --- |
| (14) | The tenant is expected to complete tenant improvements<br>at the property, for which IIP agreed to provide reimbursement of up to $8.2 million. As of May 6, 2020, IIP had funded none of<br>the tenant improvement allowance. |
| --- | --- |
| (15) | The tenant is expected to complete tenant improvements<br>at the property, for which IIP agreed to provide reimbursement of up to approximately $22.3 million. As of May 6, 2020, IIP had<br>funded none of the tenant improvement allowance. |
| --- | --- |
| (16) | The amount relates to a lease amendment which increased<br>the tenant improvement allowance under a lease at IIP’s Minnesota property by approximately $1.1 million to a total of approximately<br>$6.7 million. As of May 6, 2020, we had funded approximately $6.2 million of the tenant improvement allowance. |
| --- | --- |
| (17) | The amount relates to a lease amendment which increased<br>the tenant improvement allowance under a lease at one of IIP’s New York properties by $360,000 to a total of approximately<br>$3.4 million. As of May 6, 2020, we had funded approximately $3.0 million of the tenant improvement allowance. |
| --- | --- |
| (18) | The tenant is expected to complete tenant improvements<br>at the property, for which IIP agreed to provide reimbursement of up to $11.0 million. As of May 6, 2020, IIP had funded none<br>of the tenant improvement allowance. |
| --- | --- |
3
As of May 6, 2020, IIP owned 55 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, North Dakota, Ohio, Pennsylvania and Virginia, totaling approximately 4.1 million rentable square feet (including approximately 1.3 million rentable square feet under development/redevelopment), which were 99.1% leased (based on square footage) with a weighted-average remaining lease term of approximately 15.9 years. As of May 6, 2020, IIP had invested approximately $719.7 million in the aggregate (excluding transaction costs) and had committed an additional approximately $143.2 million to reimburse certain tenants and sellers for completion of construction and tenant improvements at IIP’s properties. These statistics do not include up to approximately $10.7 million that may be funded in the future pursuant to IIP’s lease with a tenant at one of IIP’s Illinois properties, or approximately $23.8 million that may be funded in the future pursuant to IIP’s lease with a tenant at one of IIP’s Massachusetts properties, as the tenants at those properties may not elect to have IIP disburse those funds to them and pay IIP the corresponding base rent on those funds. These statistics also treat IIP’s Los Angeles, California property as not leased, due to the tenant being in receivership and its ongoing default in its obligation to pay rent at that location.
Financing Activity
In January, IIP completed an underwritten public offering of 3,412,969 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional 445,170 shares, resulting in net proceeds of approximately $239.6 million.
In January, IIP issued shares of common stock for net proceeds of approximately $78.2 million under an “at-the-market” equity offering program.
IIP expects to use the net proceeds from these offerings to invest in specialized industrial real estate assets that support the regulated medical-use cannabis cultivation and processing industry and for general corporate purposes.
Financial Results
IIP generated total revenues of approximately $21.1 million for the three months ended March 31, 2020, compared to approximately $6.8 million for the same period in 2019, an increase of 210%. 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 March 31, 2020 also included approximately $422,000 of tenant reimbursements, rent collected and associated lease penalties through the drawdown of the security deposit at our Los Angeles, California property, as a result of the tenant’s ongoing lease default, and the drawdown of part of the security deposits totaling approximately $195,000 at certain properties in southern California leased to Vertical to pay part of the rent and associated lease penalties for March.
For the three months ended March 31, 2020, IIP recorded net income available to common stockholders and net income available to common stockholders per diluted share of approximately $11.5 million and $0.72, respectively; funds from operations (“FFO”) and FFO per diluted share of approximately $16.4 million and $1.03, respectively; and AFFO and AFFO per diluted share of approximately $17.8 million and $1.12, respectively. First quarter 2020 AFFO and AFFO per diluted share for the quarter increased by 236% and 107% from the prior year period, 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 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 conduct a conference call and webcast at 10:00 a.m. Pacific Time (1:00 p.m. Eastern Time) on Thursday, May 7, 2020 to discuss IIP’s financial results and operations for the first quarter ended March 31, 2020. 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, May 7, 2020 until 12:00 p.m. Pacific Time on Thursday, May 14, 2020, by calling 1-877-344-7529 (domestic), 855-669-9658 (Canada) or 1-412-317-0088 (international) and using access code 10143382.
4
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 releasecontains statements that IIP believes to be “forward-looking statements” within the meaning of the safe harbor provisionsof 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 generallyintended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that couldcause actual results to differ materially from those expressed in, or implied by, such statements. Investors should not placeundue 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.
5
InnovativeIndustrial Properties, Inc.
CondensedConsolidated Balance SheetS
(Unaudited)
(In thousands, except share and per share amounts)
| Assets | December 31,<br> <br>2019 | ||||
|---|---|---|---|---|---|
| Real estate, at cost: | |||||
| Land | 51,712 | $ | 48,652 | ||
| Buildings and improvements | 464,267 | 382,035 | |||
| Tenant improvements | 173,974 | 87,344 | |||
| Total real estate, at cost | 689,953 | 518,031 | |||
| Less accumulated depreciation | (17,077 | ) | (12,170 | ) | |
| Net real estate held for investment | 672,876 | 505,861 | |||
| Cash and cash equivalents | 108,261 | 82,244 | |||
| Restricted cash | 23,032 | 35,072 | |||
| Short-term investments, net | 272,907 | 119,595 | |||
| Right of use office lease asset | 1,147 | 1,202 | |||
| Other assets, net | 2,247 | 1,883 | |||
| Total assets | 1,080,470 | $ | 745,857 | ||
| Liabilities and stockholders’ equity | |||||
| Exchangeable senior notes | 135,154 | $ | 134,654 | ||
| Tenant improvements and construction funding payable | 41,185 | 24,968 | |||
| Accounts payable and accrued expenses | 1,305 | 3,417 | |||
| Dividends payable | 17,407 | 12,975 | |||
| Office lease liability | 1,204 | 1,202 | |||
| Rent received in advance and tenant security deposits | 25,236 | 20,631 | |||
| Total liabilities | 221,491 | 197,847 | |||
| 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, 2020 and December 31, 2019 | 14,009 | 14,009 | |||
| Common stock, par value 0.001 per share, 50,000,000 shares authorized: 17,035,674 and 12,637,043 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively | 17 | 13 | |||
| Additional paid-in capital | 870,433 | 553,932 | |||
| Dividends in excess of earnings | (25,480 | ) | (19,944 | ) | |
| Total stockholders’ equity | 858,979 | 548,010 | |||
| Total liabilities and stockholders’ equity | 1,080,470 | $ | 745,857 |
All values are in US Dollars.
6
InnovativeIndustrial Properties, Inc.
CondensedConsolidated STATEMENTS OF INCOME
For the Three Months Ended March 31,2020 and 2019
(Unaudited)
(In thousands, except share and per share amounts)
| For the Three Months Ended<br> <br>March 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| Revenues: | ||||||
| Rental (including tenant reimbursements) | $ | 21,130 | $ | 6,823 | ||
| Total revenues | 21,130 | 6,823 | ||||
| Expenses: | ||||||
| Property expenses | 600 | 247 | ||||
| General and administrative expense | 3,346 | 1,918 | ||||
| Depreciation expense | 4,907 | 1,218 | ||||
| Total expenses | 8,853 | 3,383 | ||||
| Income from operations | 12,277 | 3,440 | ||||
| Interest and other income | 1,444 | 993 | ||||
| Interest expense | (1,849 | ) | (792 | ) | ||
| Net income | 11,872 | 3,641 | ||||
| Preferred stock dividend | (338 | ) | (338 | ) | ||
| Net income attributable to common stockholders | $ | 11,534 | $ | 3,303 | ||
| Net income attributable to common stockholders per share: | ||||||
| Basic | $ | 0.72 | $ | 0.34 | ||
| Diluted | $ | 0.72 | $ | 0.33 | ||
| Weighted average shares outstanding: | ||||||
| Basic | 15,784,296 | 9,664,775 | ||||
| Diluted | 15,898,091 | 9,797,676 |
7
InnovativeIndustrial Properties, Inc.
CondensedConsolidated FFO AND AFFO
For the Three Months Ended March 31,2020 and 2019
(Unaudited)
(In thousands, except share and per share amounts)
| For the Three Months Ended<br> <br>March 31, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Net income attributable to common stockholders | $ | 11,534 | $ | 3,303 |
| Real estate depreciation | 4,907 | 1,218 | ||
| FFO attributable to common stockholders | 16,441 | 4,521 | ||
| Stock-based compensation | 825 | 563 | ||
| Non-cash interest expense | 501 | 208 | ||
| AFFO attributable to common stockholders | $ | 17,767 | $ | 5,292 |
| FFO per share — basic | $ | 1.04 | $ | 0.47 |
| FFO per share — diluted | $ | 1.03 | $ | 0.46 |
| AFFO per share — basic | $ | 1.13 | $ | 0.55 |
| AFFO per share — diluted | $ | 1.12 | $ | 0.54 |
| Weighted average shares outstanding — basic | 15,784,296 | 9,664,775 | ||
| Weighted average shares outstanding — diluted | 15,898,091 | 9,797,676 |
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, plus 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.
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.
8
Company Contact:
Catherine Hastings
Chief Financial Officer
Innovative Industrial Properties, Inc.
(858) 997-3332
9