Innovative Industrial Properties Stock Jumps on Q4 Earnings

Acquisitions boosted IIP's footprint to 119 properties.

Innovative Industrial Properties Inc. (NYSE: IIPR) saw its stock price jump quickly upon release of its fourth-quarter earnings from 2022, which revealed $70.5 million in revenues, a 20% jump from a year prior.

IIP’s stock rose by 1.7% in after-hours trading on Monday following its earnings report release, Seeking Alpha reported, and the company’s acquisition rampage is continuing into 2023, signifying that IIP’s plan is to continue gobbling up as much marijuana real estate as it can, given the profits it’s made with the approach thus far.

At the close of 2022, IIP reported it had 12% debt offsetting its $2.6 billion in assets and generated $276.4 million in revenues for all of 2022. Acquisitions brought IIP’s portfolio to 110 properties in 19 states last year, it reported. And almost none of its debt matures until 2026.

Already this year, IIP bought a Pennsylvania cannabis grow from TILT Holdings and leased the property back to the company in a “long-term” deal worth $15 million.

But there are also signs of potential trouble in IIP’s latest quarterly report that echo issues the company has had collecting on rent from some of its cannabis business tenants, including California-based Kings Garden, which it said had just paid off $825,000 in outstanding rent. Kings Garden is also apparently looking to sell or merge, IIP reported.

That’s only one of IIP’s headaches, however. The real estate firm also negotiated new tenant deals with multiple major cannabis companies that are looking for working capital and is still weathering several tenant defaults.

Overall rent collections have taken a 5% dip since the third quarter. That includes $8.6 in unpaid rent last year from four companies:

  • California-based Kings Garden
  • Vertical, also based in Californai
  • Green Peak in Michigan
  • An affiliate of Parallel in Pennsylvania

Some of the hurdles IIP has dealt with in recent months as the broader U.S. cannabis industry has struggled include:

  • In the fourth quarter, IIP amended leases for California-based Gold Flora, Illinois-based 4Front Ventures Corp., and Massachusetts-based Holistic Industries Inc. to give the trio a total of $25.4 million in infrastructure improvements. Those companies’ leases had “corresponding adjustments” made to their base rent.
  • Also before the end of the year, IIP sold a Pennsylvania property to Maitri Holdings for $23.5 million, pulling a $3.6 million profit, though the move runs contrary to IIP’s business model.
  • Already in 2023, IIP amended lease deals with three more major cannabis tenants on the East Coast: Ascend Wellness Holdings Inc. in New Jersey and two of the medical marijuana companies in New York, PharmaCann Inc. and Goodness Growth Holdings Inc. IIP gave the trio a total of $34 million in real estate improvements, again for “corresponding adjustments” to base rent. IIP also added “cross-default provisions to all leases with each tenant.”
  • The company announced that $413,000 in security deposits made by Holistic Industries Inc. for properties in Michigan and California were being “applied for payment of rent.”
  • IIP saw rent defaults by two companies already this year: Green Peak Industries Inc. in Michigan and and an affiliate of SH Parent Inc. (Parallel) in Pennsylvania. IIP said so far none of the $2.7 million in security deposits have been applied to those companies’ unpaid rents.
  • SH Parent Inc. (Parallel) also defaulted on a debt to IIP over a project in development in Texas, and it appears IIP stands to lose an $8.2 million investment.
  • IIP found a buyer for several properties that were being used by Medical Investory Holdings LLC, one of the California tenants IIP reported in the third quarter as behind on rent. The deal is for $16.2 million, but IIP warned in the latest report that the deal “may not close on the terms described or at all.”
  • Rent collection overall IIP’s portfolio dropped from 97% in Q3 to 94% in December and down to 92% for the month of February.

John Schroyer

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