Is Revolutionary Industrial Properties (NYSE:IIPR) a promote on the again of what is been a marked decline within the fairness values of listed US multi-state operators? The scenario is really dire with a wholesale lack of liquidity, entrenched unprofitability, and a risk-off macro backdrop driving MSOs to new lows. At stake right here is the US hashish dream and a sector that was introduced out of the darkish by a wave of statewide legalizations. A once-promising market is now imploding and is presently amidst a dearth of liquidity that runs the danger of deteriorating right into a full-blown disaster. AdvisorShares Pure US Hashish ETF (MSOS), the biggest hashish ETF, is down 27% year-to-date with Revolutionary Industrial down 21% over the identical time-frame to construct on a selloff that began final 12 months. The popular shares (NYSE:IIPR.PA) have additionally been trending down.
Revolutionary Industrial’s largest tenants are all in danger. PharmaCann, its largest tenant with 11 leases which type 15% of rental income as of the top of its fiscal 2023 first quarter, is personal so has been spared from the general public chaos. However Ascend Wellness (OTCQX:AAWH), Inexperienced Thumb Industries (OTCQX:GTBIF), and Curaleaf (OTCPK:CURLF) have all confronted strain on the again of flagging inventory costs lowering the alternatives to faucet their shares for liquidity. To be clear right here, the bearish argument is that with pandemic-era retail-driven hashish euphoria now totally swapped for worry and a pertinent risk-off setting, Revolutionary Industrial’s largest tenants might ultimately wrestle to pay hire.
Revolutionary Industrial Stories Sturdy First Quarter Earnings As Tenants Face Headwinds
Ascend has 4 leases with Revolutionary Industrial that type 10% of rental income. The New York-based MSO is down 73% over the past 12 months and final reported a fiscal 2023 first-quarter money and equivalents place of $76.5 million in opposition to trailing 12-month detrimental free money movement of $93.7 million. Bulls could be proper to flag that Ascend reported constructive working money flows of $5.8 million throughout its first quarter however the now penny inventory held complete debt of $569.8 million as of the top of its first quarter. To focus on how crucial the scenario is, Ascend’s quarterly curiosity expense is operating at round $8.85 million per quarter, round 7.6% of its $116 million market cap with the corporate additionally owing $44 million in federal taxes.
Revolutionary Industrial’s fiscal 2023 first-quarter earnings have been sturdy, defying broader business headwinds. Income got here in at $76.1 million, a progress of 18% over the year-ago comp and a beat by $5.45 million on consensus estimates. Internet revenue attributable to widespread stockholders was $40.8 million, round $1.43 per diluted share, and up round $0.11 from the year-ago comp. Weighted common shares excellent elevated by 1.88 million. The REIT final declared a quarterly money dividend of $1.80 per share, according to its prior payout and a ten.2% annualized ahead yield.
Property bills did leap 183% year-over-year on account of how the fairness REIT payments its tenants for insurance coverage and taxes. Revolutionary Industrial additionally benefited from a leap in curiosity revenue to $2.23 million in the course of the quarter on the again of a money and investments stability that was $201.7 million as of the top of the primary quarter. Crucially, hire assortment from the working portfolio was 98% for the quarter with adjusted FFO per share of $2.25 greater than sufficient to cowl the quarterly dividend and rising by $0.21 from $2.04 within the year-ago quarter. It additionally handily beat consensus estimates for FFO to come back in at $1.91 per share.
The Finish Of The Dividend Development Golden Age
Revolutionary Industrial’s FFO payout ratio presently stands at 80%, a stage that doesn’t pose a threat to the present payout however doesn’t present a big sufficient area for a near-term blockbuster elevate particularly in opposition to $4.2 million of hire, round 5.5% of the rental income, being from safety deposits. Bulls would spotlight the REIT has a low debt-to-total gross belongings ratio of simply 12% and that it faces no giant debt maturities till Could 2026.
Longer-term the US hashish market is forecasted to develop to achieve $71 billion in gross sales by 2030. This has raised the prospect of an business starved of liquidity and in danger within the close to time period however with a more healthy long-term macro profile. Critically, the prospect of widescale tenant chapter 11s on the again of a chronic dearth of liquidity poses an actual threat to Revolutionary Industrial. Nevertheless, with MSO licenses extraordinarily invaluable any ramp in bankruptcies could be matched with intense consolidation that will see the consolidated entity take over any leases with the REIT.
I’ve switched from bullish to impartial due to the stress a few of Revolutionary Industrial’s tenants are presently underneath. It will proceed to overwhelm on sentiment in direction of Revolutionary Industrial and will probably disrupt its FFO. For now, the period of marked dividend progress is over because the REIT strikes to a extra unsure interval.