Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Innovative Industrial Properties Inc (IIPR, Financial) reported a solid Q2 with $80 million in total revenues and $2.29 in AFFO per share.
- The company increased its Q2 common stock dividend by 4.4% to $1.90, continuing its track record of annual dividend increases since 2016.
- Innovative Industrial Properties Inc (IIPR) has a strong capital position with over $210 million in liquidity and no debt maturities until May 2026.
- The company successfully re-leased four properties covering $69 million in invested capital and closed on new investments of over $65 million year-to-date.
- Innovative Industrial Properties Inc (IIPR) maintains a well-diversified portfolio with no single tenant representing more than 18% of annualized base rent and no state representing more than 15%.
Negative Points
- The cannabis industry faces challenges with capital raising and M&A activity down significantly compared to the previous year.
- Some mature cannabis markets are experiencing increased competition and price compression, impacting profitability.
- The rescheduling of cannabis from Schedule 1 to Schedule 3 remains uncertain, with potential delays due to public comments and possible legal challenges.
- Innovative Industrial Properties Inc (IIPR) has a few unoccupied properties, including significant square footage in Pittsburgh and California, which require re-leasing efforts.
- The company faces macroeconomic challenges impacting the real estate sector, particularly in the cannabis industry, which could affect tenant performance.
Q & A Highlights
Q: Are there any positive movements on the CapEx side driven by new state adult-use program expansions despite tighter capital markets?
A: Paul Smithers, President and CEO, noted that there is enthusiasm in the industry around the rescheduling issue. While there is some wait-and-see regarding the timing of rescheduling and 280E relief, there is built-up capital expected to hit the market once there is more clarity. The rescheduling process is progressing, and once 280E relief impacts the bottom line, more capital is expected to be available for CapEx expansion.
Q: Could there be an impact on rescheduling from the recent Chevron ruling or a potential change in administration?
A: Paul Smithers explained that the recent Supreme Court case removing the Chevron doctrine is seen as positive. The Controlled Substance Act explicitly allows the DEA to reschedule substances, so ambiguity is unlikely. Regarding a change in administration, Smithers believes that even if former President Trump were elected, he would likely support rescheduling due to its alignment with medical cannabis support and research.
Q: What characteristics must a sale leaseback or follow-on investment include to meet your underwriting, and have these requirements changed recently?
A: Ben Regin, Chief Investment Officer, stated that their underwriting criteria have not changed significantly. They remain highly selective, focusing on opportunities in markets and with tenants they like. They are optimistic about achieving their investment goals and are pleased with their leasing activities, having re-tenanted $69 million worth of assets year-to-date.
Q: How do you balance investments with new external tenants and existing tenants in terms of additional investment commitment and retenanting?
A: Alan Gold, Executive Chairman, emphasized the importance of supporting existing tenants and being a strong real estate partner. Ben Regin added that they feel good about their current tenant roster and are open to new opportunities with management teams they like, maintaining rigorous underwriting criteria.
Q: Can you provide an update on any current unoccupied spaces and the leasing or selling efforts for those properties?
A: Catherine Hastings, COO, mentioned that they have a few properties remaining to be re-leased, including cannabis real estate in Pittsburgh and warehouse space in California. They are confident in their team's ability to position these assets and hope to provide updates as they progress.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
