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II

INNOVATIVE INDUSTRIAL PROPERTIES INC (IIPR)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 results were resilient but modestly down year over year: revenue $76.7M (-3% YoY), diluted EPS $1.36 (-6% YoY), AFFO/share $2.22 (-3% YoY). Drivers included properties recaptured/sold, lease amendments, partial rent payments, and two sales‑type leases shifting rent to deposit liabilities; offsets were new acquisitions, lease amendments, and escalations .
  • Portfolio fundamentals improved: operating portfolio 98.3% leased (vs. 95.7% in Q3), WALT 13.7 years; 2024 leasing totaled ~530k RSF (6% of portfolio). Liquidity rose to $238.7M; revolver upsized to $87.5M and undrawn; debt-to-gross assets 11%, DSC 16.8x, no maturities until May 2026 .
  • Dividend maintained at $1.90/share (annualized $7.60); AFFO payout ratio 86%. IIP has increased dividends each year since inception .
  • PharmaCann defaults resolved (Jan 30, 2025): rent restarted on 9 leases with increased deposits; two properties to be transitioned by Aug 1, 2025; CFO flagged ~$0.16 negative quarterly impact to rent going forward, potentially improving with re‑tenanting—reducing near‑term uncertainty and a key stock narrative catalyst .

What Went Well and What Went Wrong

What Went Well

  • Leasing/occupancy strength: operating portfolio 98.3% leased; 2024 leasing of ~530k RSF including 160k RSF to Tri‑Mountain Pure (PA) and 6k RSF to non‑cannabis tenants (CA) .
  • Balance sheet and liquidity: total liquidity $238.7M at 12/31/24; revolver upsized to $87.5M and undrawn; 11% debt to gross assets; DSC 16.8x; no maturities until May 2026 .
  • Management execution and tone: “one of the lowest levered balance sheets in the REIT industry” and “exceptionally well positioned” to navigate headwinds and invest selectively .

What Went Wrong

  • Revenue/AFFO pressure: Q4 revenue down 3% YoY; AFFO/share down 3% YoY, driven by asset recapture/sales, lease amendments/deferrals, partial rent payments, and reclassification of two leases to sales‑type (rent recognized as deposit liabilities) .
  • Tenant stress: applied $5.7M of security deposits in Q4 (vs. $0.8M in Q4’23), including $4.3M related to PharmaCann; underscores ongoing operator financing challenges and transitional rent abatements on re‑leased assets .
  • PharmaCann rent reduction and rent abatement on two assets (MI, MA) effective Feb 1, 2025, plus dependency on PharmaCann refinancing by 6/30/25; CFO noted ~$0.16 negative quarterly rent impact until re‑tenanting offsets .

Financial Results

Quarter-over-Quarter

MetricQ2 2024Q3 2024Q4 2024
Total Revenues ($USD Millions)$79.793 $76.526 $76.744
Net Income Attributable to Common ($USD Millions)$41.655 $39.651 $39.461
Diluted EPS ($USD)$1.44 $1.37 $1.36
FFO per Share – Diluted ($USD)$2.06 $2.02 $2.02
Normalized FFO per Share – Diluted ($USD)$2.06 $2.02 $2.03
AFFO per Share – Diluted ($USD)$2.29 $2.25 $2.22
Dividend per Share ($USD)$1.90 $1.90 $1.90
AFFO Payout Ratio (%)83% 84% 86%

Year-over-Year (Q4)

MetricQ4 2023Q4 2024
Total Revenues ($USD Millions)$79.156 $76.744
Diluted EPS ($USD)$1.45 $1.36
FFO per Share – Diluted ($USD)$2.07 $2.02
Normalized FFO per Share – Diluted ($USD)$2.07 $2.03
AFFO per Share – Diluted ($USD)$2.28 $2.22

KPIs and Portfolio

KPIQ2 2024Q3 2024Q4 2024
Operating Portfolio % Leased95.6% 95.7% 98.3%
Weighted Avg Lease Term (Years)14.4 14.0 13.7
Total Liquidity ($USD Millions)$210.9 $222.4 $238.7
Revolver Capacity ($USD Millions)$50.0 $87.5 $87.5
Debt / Total Gross Assets (%)11% 11% 11%
Debt Service Coverage (x)17.0x 17.0x 16.8x
Security Deposits Applied ($USD Millions)$0.6 $1.4 $5.7

Segment/Composition

Composition (as of 12/31/24)Q4 2024
Property Type by ABR: Industrial / Retail / Industrial+Retail (%)92% / 2% / 6%
MSO Share of ABR (%)90%
Public Tenants Share of ABR (%)62%
Operating Portfolio RSF (Million)8.5
Development/Redevelopment RSF (Thousand)666 total; 491 expected at completion across three properties
2024 Leasing Activity (RSF)~530,000 (6% of portfolio)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per ShareQuarterly (Q3→Q4 2024)$1.90 (paid Oct 15, 2024) $1.90 (paid Jan 15, 2025) Maintained
Revolving Credit FacilityOngoing$50.0M (Q2) $87.5M (upsized Nov; undrawn) Raised

Note: IIP does not provide formal revenue/EPS guidance. Management’s targeted dividend payout ratio framework (75–85% of AFFO) remained consistent; Q4 payout 86% .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Federal rescheduling & SAFE bankingOptimistic but “murky” DEA process; bipartisan support; tracking DEA comments/hearing timing New DEA leadership; hearings postponed; White House direction seen as key; cautious optimism Incremental but uncertain progress
Illicit market enforcementNY & CA illicit market concerns; NY ramping enforcement; CA illicit market ~$10B Continued emphasis on enforcement improvements; NY adult-use sales >$1B since launch Gradual improvement aiding licensed sales
Tenant health & defaultsApplied deposits ($0.6M in Q2; $1.4M in Q3); individual tenant issues (ForeFront delays, Temescal lease termination) $5.7M deposits applied in Q4; PharmaCann resolution with rent resuming on 9 leases; increased deposits Near-term pressure; structured resolutions
Leasing & re‑tenantingRetenanted assets (e.g., Lume approvals; Summit cultivation build‑out complete) 98.3% leased; 530k RSF leased in 2024; Tri‑Mountain Pure fills 160k RSF Strengthening occupancy
Liquidity & credit accessRevolver increased to $50M; discussions with additional banks Revolver upsized to $87.5M; four banks participating; >$235M total liquidity Improved banking relationships
Investment postureHighly selective; AYR FL acquisition ($43M total commitment) 2025 under contract MD $7.8M; disciplined pipeline; potential financial-side investments tied to real estate Opportunistic selectivity maintained

Management Commentary

  • “We are proud to have strategically positioned ourselves to have one of the lowest levered balance sheets in the REIT industry at 11% debt to total gross assets.”
  • On PharmaCann: “We reached a comprehensive resolution… recommencing cash rent payments on nine properties… increased security deposits… and transitioning two properties to new tenant(s).”
  • “I see our company as exceptionally well positioned to continue to execute on the business while navigating through the regulated cannabis industry headwinds.”
  • “With total available liquidity exceeding $235 million, we are well positioned to pursue strategic investments and capitalize on our pipeline.”

Q&A Highlights

  • Tenant risk management: Management monitors all tenants closely and acts swiftly on defaults; structured resolutions involve increased security, policy changes, and potential notes/equity conditions—“not open for business just to cut rents” .
  • Role in operator refinancings: Strong balance sheet and liquidity provide flexibility to support opportunities, but broader capital market development is needed; focus remains on MSOs/best operators .
  • Regulatory outlook: Timing uncertain; emphasis on White House guidance; DEA/HHS leadership changes being watched; optimism on state-level momentum (PA, OH, NY) .
  • Pipeline quality: Management broadened opportunities (including financial-side investments with real estate income), but remains primarily cannabis‑focused and highly selective .
  • ForeFront/Illinois delays: Cross‑default language exists; largest IL asset now operational; confidence in IL market and tenant recovery .

Estimates Context

  • Wall Street consensus (S&P Global) estimates for revenue and EPS were unavailable at the time of this analysis due to SPGI request limits; therefore, we cannot quantify beats/misses versus consensus for Q4 2024. Values would ordinarily be retrieved from S&P Global.

Key Takeaways for Investors

  • Occupancy and leasing momentum offset some tenant stress: operating portfolio 98.3% leased and 2024 leasing ~530k RSF underpin medium‑term cash flow stability despite near‑term rent impacts from specific tenants .
  • Balance sheet strength is a strategic advantage: 11% leverage, no maturities until 2026, DSC 16.8x, and a larger undrawn revolver support selective growth and tenant resolutions without equity dependence .
  • PharmaCann resolution reduces uncertainty: structured rent restart and enhanced collateral limit downside; watch re‑tenanting progress at MI/MA properties by Aug 1, 2025 (potential earnings recovery catalyst) .
  • Near‑term AFFO headwinds likely modest: Q4 AFFO/share dipped to $2.22; CFO flagged ~$0.16 quarterly negative rent impact from PharmaCann amendments—monitor for offset via re‑tenanting/leasing .
  • Regulatory trajectory supports medium‑term demand: improving enforcement (NY), adult‑use rollouts (OH), potential PA adult‑use; these dynamics favor MSO tenants and re‑leased properties ramping into 2025 .
  • Dividend appears well‑covered within policy: maintained at $1.90/share; payout at 86% of AFFO—consistent with long‑standing 75–85% target framework even amid transitional rent dynamics .
  • Focus for 1H 2025: track tenant cash collections (especially PharmaCann), rent commencements on re‑leased assets, and incremental bank participation in the revolver—key inputs to AFFO stabilization and optionality .