Innovative Industrial Properties(IIPR) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenues for Q3 2023 were $78 million, a 10% increase from Q3 2022, driven by increased tenant reimbursements and contractual rental escalations [2][15][64] - Net income attributable to common stockholders was$ 41 million or $1.45 per share [2] - Adjusted funds from operations (AFFO) for Q3 was$ 65 million or $2.29 per share, a 7.5% increase compared to$ 2.13 per share in Q3 2022 [3][65] - The dividend declared was $1.80 per share, equivalent to an annualized dividend of$ 7.20 per share, with a payout ratio of 79% of AFFO [15][66] Business Line Data and Key Metrics Changes - Rent collection for the operating portfolio was 97% for the quarter, with the 3% not collected primarily due to a defaulted tenant [15][45] - The company has regained possession of properties from tenants such as Parallel, Green Peak, and Kings Garden, focusing on re-leasing efforts [21][26] Market Data and Key Metrics Changes - The regulated cannabis industry in the U.S. is projected to grow to $29.5 billion in 2023, representing approximately a 12% growth from 2022 [28] - Unit pricing for regulated cannabis products has been under pressure at the wholesale level due to supply-demand dynamics and macroeconomic conditions [29] - The funding environment for U.S. cannabis operators is significantly challenged, with capital raising and M&A activity at their lowest levels since before 2018 [9] Company Strategy and Development Direction - The company aims to maintain access to multiple capital markets and has closed a$ 30 million revolving credit facility to enhance liquidity [5][67] - The company is strategically reducing overall investment activity due to macroeconomic uncertainties and is being selective in evaluating potential investment opportunities [54] - The management is optimistic about legalization trends and believes their expertise and portfolio position them well for future growth [68] Management's Comments on Operating Environment and Future Outlook - Management noted that the cannabis industry continues to perform well, with 40 states now having adult-use or medical cannabis [8] - The potential reclassification of cannabis from Schedule I to Schedule III is seen as a significant positive development, particularly regarding the 280E tax implications [20][78] - Management expressed cautious optimism about the future, highlighting the importance of addressing illicit market dynamics and improving access to capital for operators [111][112] Other Important Information - The company has a strong balance sheet with a debt-to-gross assets ratio of less than 12% and no meaningful debt maturities until May 2026 [36][61] - The company is actively monitoring regulatory developments, including the potential rescheduling of cannabis and its implications for the industry [17][19] Q&A Session Summary Question: How is the business outlook for tenants trending? - Management noted modest improvements in wholesale pricing and ongoing litigation resolutions, indicating a positive trend for tenants [69][70] Question: Can you provide an update on litigation expenses? - Management confirmed ongoing litigation but emphasized a positive resolution in Pennsylvania with a judgment in their favor [70] Question: What is the impact of the recent lease amendment with Goodness Growth? - The committed capital for the property has increased to approximately $81 million following the lease amendment [118] Question: How does the company view the risks associated with New York? - Management acknowledged the challenges in New York but remains optimistic about its long-term growth potential [120][121] Question: What is the impact of the Skymint assets on rental revenues? - Management clarified that the impact on rent collection from Skymint is minimal, as the affected properties represent only a small percentage of total assets [125]