Innovative Industrial Properties Acquires Florida Property and Expands Long-Term Real Estate Partnership with AYR Wellness

Rhea-AI Summary

Innovative Industrial Properties (IIPR) has acquired a 16-acre property in Ocala, Florida, boasting 145,000 sq. ft. of industrial space for $13 million. The property will be leased to AYR Wellness under a long-term, triple-net lease with IIPR reimbursing up to $30 million for redevelopment, totaling an investment of $43 million. AYR will use the redeveloped space for cannabis cultivation. IIPR owns another property leased to AYR in Ohio. AYR operates in eight states with 91 dispensaries and reported Q1 2024 revenue of $118 million. Florida, a key market with $2.6 billion in 2023 cannabis sales, may vote on adult-use legalization in November 2024. IIPR’s portfolio includes 108 properties across 19 states, with investments totaling $2.5 billion.

Positive

• IIPR acquired a significant 16-acre property in Ocala, Florida for $13 million.
• Entered into a long-term, triple-net lease with AYR Wellness.
• IIPR to invest a total of $43 million in the property after redevelopment.
• AYR Wellness reported strong Q1 2024 revenues of $118 million and an adjusted EBITDA of $29 million.
• Florida is a large medical-use cannabis market with $2.6 billion in sales in 2023.
• Potential adult-use legalization vote in Florida in November 2024 could boost market opportunities.
• IIPR has a diversified portfolio with investments across 19 states and a total of $2.5 billion invested.

Negative

• High upfront investment of $43 million required for property acquisition and redevelopment.
• Dependence on regulatory changes in Florida for potential market expansion.
• Significant financial commitments with additional capital needed for future construction.
• Market risks associated with cannabis industry regulations and potential volatility.

Insights

Financial Analyst

The acquisition of the Ocala, Florida property by Innovative Industrial Properties (IIP) for $13.0 million and the subsequent lease to AYR Wellness is an important step in IIP's strategy to expand its portfolio within the regulated U.S. cannabis industry. This move signifies not only an expansion of IIP's real estate footprint but also an increased commitment in capital, with a total expected investment of $43.0 million including construction reimbursements. Such capital deployment is a clear indicator of IIP's confidence in the growth potential of the cannabis industry, particularly in Florida, which is the largest medical-use cannabis market in the U.S.

For investors, the entry into a long-term, triple-net lease agreement with AYR Wellness is a positive signal. Triple-net leases transfer significant financial responsibilities (like property taxes, insurance and maintenance) to the tenant, thereby providing IIP with predictable and stable cash flows. Given AYR's existing operations and significant revenues, this partnership appears financially sound. The anticipated adult-use legalization vote in Florida adds another layer of potential upside, potentially boosting demand and value for cannabis-related real estate.

In the short term, the immediate impact is the increase in IIP's asset base and rental income. In the long term, should Florida legalize adult-use cannabis, the valuation of these properties and the corresponding rental income could increase significantly. However, this relies on both the political climate and the ability of AYR and other tenants to successfully navigate market and regulatory challenges.

Market Research Analyst

The context of this acquisition must be viewed in light of the broader market trends. The Florida medical cannabis market is substantial, with sales reported at $2.6 billion in 2023. The anticipated vote on adult-use legalization in November 2024 could further drive market expansion, increasing demand for production facilities and potentially leading to higher rents and property values for IIP.

AYR's strong presence in Florida, with 64 dispensaries and extensive production capacity, positions it well to capitalize on this potential shift. For IIP, aligning with a well-integrated operator like AYR not only mitigates some risks but also enhances the likelihood of stable and growing rental income. The reimbursement agreement for construction costs ensures that AYR has the necessary infrastructure to expand, ultimately benefiting IIP through increased lease payments based on the developed property's value.

Strategically, this move aligns with IIP's business model of providing capital to the cannabis sector. By acquiring and leasing back properties, IIP enables operators to unlock capital tied in real estate, allowing them to invest in growth initiatives. This, in turn, supports IIP's growth by securing long-term tenants in a rapidly evolving market.

Cannabis Industry Expert

The acquisition of the Ocala property and its planned redevelopment into a cannabis cultivation facility signal a strategic enhancement for both IIP and AYR. With Florida being a significant medical cannabis market and potentially transitioning to adult-use, the timing of this investment is notable. The 2024 vote could dramatically alter the market landscape, creating an enormous uptick in demand for cultivation and retail facilities.

AYR's integration across multiple states and extensive operational footprint make it a robust partner for IIP. The fact that AYR successfully reported revenues of $118 million and an adjusted EBITDA of $29 million in the first quarter of 2024 underlines its capacity to manage and grow within this sector. This financial stability is important for IIP as it implies reduced tenant default risk and provides confidence in continuous rental income streams.

In the long run, if Florida does legalize adult-use cannabis, properties like the one in Ocala will likely see increased utilization rates and higher valuation. However, the reliance on regulatory changes introduces an element of uncertainty. Investors should note that while the upside potential is significant, it is also contingent upon favorable legislative outcomes and the sustained financial health of lessees like AYR.

SAN DIEGO--(BUSINESS WIRE)-- Innovative Industrial Properties, Inc. (IIP), the first and only real estate company on the New York Stock Exchange (NYSE: IIPR) focused on the regulated U.S. cannabis industry, announced today that it closed on the acquisition of a 16 acre property comprising 145,000 square feet of industrial space in Ocala, Florida, and entered into a long-term, triple-net lease with a subsidiary of AYR Wellness Inc. (CSE: AYR.A, OTCQX: AYRWF) (AYR).

The purchase price for the property was $13.0 million ($90 per square foot). AYR is expected to redevelop one building on the property comprising 98,000 square feet of industrial space for expected use as a regulated cannabis cultivation facility upon completion, for which IIP has agreed to provide reimbursement of up to $30.0 million. Assuming full reimbursement for the construction, IIP’s total investment in the property is expected to be $43.0 million (excluding transaction costs).

In addition to this property, IIP owns and leases to AYR one processing facility in Ohio comprising 11,000 square feet.

As the pioneering real estate investment trust (REIT) for the regulated cannabis industry, IIP partners with experienced, regulated cannabis operators and serves as a source of capital by acquiring and leasing back their real estate assets, in addition to offering other creative real estate-based capital solutions.

AYR is a leading, vertically integrated cannabis operator in the United States, operating in eight states with 18 production facilities and 91 dispensary locations. AYR reported first quarter 2024 total revenues of $118 million and adjusted EBITDA of $29 million. In Florida, AYR operates 64 dispensary locations, with 745,000 square feet of existing production capacity (excluding this property).

Florida represents the largest medical-use cannabis market in the United States, with the program having received 71% voter approval in 2019. According to the Florida Office of Medical Marijuana Use (OMMU), as of May 31, 2024, there were over 880,000 qualified patients and over 2,300 qualified physicians in the medical-use cannabis program, and BDSA reported 2023 regulated sales of $2.6 billion. Floridians are expected to vote on adult-use legalization of cannabis in November 2024, which requires 60% approval to pass. Under the initiative, existing licensed medical cannabis operators are expected to be authorized to sell cannabis to adults for personal use, and the Florida state legislature could provide by state law for the licensure of other entities to cultivate and sell cannabis for adult-use.

As of June 10, 2024, IIP owned 108 properties comprising 9.0 million square feet (including 722,000 rentable square feet under development/redevelopment) in 19 states. As of June 10, 2024, IIP had invested $2.5 billion across its portfolio, including capital invested to date (excluding transactions costs) and additional capital commitments to fund future construction and improvements at IIP’s properties.

About Innovative Industrial Properties

Innovative Industrial Properties, Inc. is a self-advised Maryland corporation focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated 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.

Innovative Industrial Properties Forward-Looking Statements

This press release contains statements that IIP believes to be “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than historical facts, including, without limitation, statements regarding the Florida property and AYR, 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 generally intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, such statements. Investors should not place undue 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240606268538/en/

David Smith

Chief Financial Officer

Innovative Industrial Properties, Inc.

(858) 997-3332

Source: Innovative Industrial Properties, Inc.

FAQ

What is the new property acquired by Innovative Industrial Properties (IIPR) in Florida?

IIPR has acquired a 16-acre property in Ocala, Florida, with 145,000 sq. ft. of industrial space for $13 million.

How much will Innovative Industrial Properties invest in the Florida property?

IIPR’s total investment in the Florida property is expected to be $43 million, including up to $30 million for redevelopment.

What are the terms of the lease between Innovative Industrial Properties and AYR Wellness?

The property is under a long-term, triple-net lease with AYR Wellness.

How did AYR Wellness perform financially in Q1 2024?

AYR Wellness reported Q1 2024 revenues of $118 million and an adjusted EBITDA of $29 million.

What is the significance of the potential adult-use cannabis legalization in Florida for IIPR?

The potential adult-use cannabis legalization vote in November 2024 could expand market opportunities for IIPR in Florida.

How many properties does Innovative Industrial Properties own?

As of June 10, 2024, IIPR owns 108 properties across 19 states.

What is the total investment made by Innovative Industrial Properties?

IIPR has invested $2.5 billion across its portfolio as of June 10, 2024.