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 results for the fourth quarter and year ended December 31, 2023.
Full Year 2023
|
Years Ended December 31, |
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(Per share) |
2023 |
|
2022 |
|
$ Change |
|
% Change |
Net income attributable to common stockholders |
$5.77 |
|
$5.52 |
|
$0.25 |
|
5% |
Normalized FFO |
$8.29 |
|
$7.76 |
|
$0.53 |
|
7% |
AFFO |
$9.08 |
|
$8.45 |
|
$0.63 |
|
7% |
Fourth Quarter 2023
Financial Results and Dividend
|
Three Months Ended December 31, |
||||||
(Per share) |
2023 |
|
2022 |
|
$ Change |
|
% Change |
Net income attributable to common stockholders |
$1.45 |
|
$1.46 |
|
($0.01) |
|
(1%) |
Normalized FFO |
$2.07 |
|
$1.95 |
|
$0.12 |
|
6% |
AFFO |
$2.28 |
|
$2.12 |
|
$0.16 |
|
8% |
Financing Activity
Portfolio ? Leasing and New Commitments
Portfolio ? Rent Collection
Year-to-Date 2024
Portfolio ? Leasing and New Commitments
Financing Activity
Portfolio ? Rent Collection
Balance Sheet Highlights (at December 31, 2023)
Property Portfolio Statistics (as of December 31, 2023)
Financial Results
For the three months ended December 31, 2023, IIP generated total revenues of approximately $79.2 million, compared to approximately $70.5 million for the same period in 2022, an increase of 12%. The increase was primarily driven by an increase in tenant reimbursements versus the prior period, as well as activity in prior periods for the acquisition and leasing of new properties, additional building infrastructure allowances provided to tenants at certain properties that resulted in increases to base rent and contractual rental escalations at certain properties. Total revenues for the three months ended December 31, 2023 and 2022 included approximately $6.6 million and $3.0 million, respectively, of tenant reimbursements for property insurance premiums and property taxes. Rental revenues for the three months ended December 31, 2023 also included (1) approximately $0.8 million of security deposits applied for payment of rent for a lease with 4Front; (2) approximately $0.2 million of the $0.4 million in payments received from Kings Garden, Inc. (Kings Garden) pursuant to an offer of judgment for lease defaults on certain California properties previously occupied by Kings Garden; and (3) approximately $1.7 million received as partial payment of a consent order against Parallel for lease defaults at one of IIP's Pennsylvania properties previously leased to Parallel.
For the year ended December 31, 2023, IIP generated total revenues of approximately $309.5 million, compared to approximately $276.4 million for 2022, an increase of 12%. Of that increase, approximately $13.3 million was related to tenant reimbursements for property insurance premiums and property taxes, which increased to approximately $23.4 million for the year ended December 31, 2023, compared to approximately $10.1 million for the year ended December 31, 2022. The increase in tenant reimbursements was primarily due to a change in IIP's policy from allowing tenants to pay property taxes directly to taxing authorities to IIP making tax payments directly to taxing authorities and then billing tenants for property tax reimbursements starting in January 2023. The remaining increase was driven primarily by the acquisition and leasing of new properties, additional building infrastructure allowances provided to tenants at certain properties that resulted in adjustments to base rent, and contractual rental escalations at certain properties, partially offset by the previously disclosed defaults of tenants for which IIP did not receive or record revenue and the termination of certain leases with Green Peak, Kings Garden, Medical Investor Holdings, LLC (Vertical) and Parallel. During the twelve months ended December 31, 2023, IIP collected 98% of contractual rents and did not collect rents totaling approximately $4.8 million (including approximately $4.5 million of contractual base rents and property management fees and $0.3 million for tenant reimbursements for property insurance premiums and taxes from three tenants).
For the three months ended December 31, 2023, IIP recorded net income attributable to common stockholders of approximately $41.3 million, or $1.45 per share; funds from operations (FFO) of approximately $58.4 million, or $2.07 per share; Normalized FFO of approximately $58.6 million, or $2.07 per share; and AFFO of approximately $64.3 million, or $2.28 per share.
For the year ended December 31, 2023, IIP recorded net income attributable to common stockholders of approximately $164.2 million, or $5.77 per share; FFO of approximately $231.6 million, or $8.20 per share; Normalized FFO of approximately $234.1 million, or $8.29 per share; and AFFO of approximately $256.5 million, or $9.08 per share.
IIP paid a quarterly dividend of $1.82 per common share on January 12, 2024 to stockholders of record as of December 29, 2023. IIP's AFFO payout ratio was 80% (calculated by dividing the common stock dividend declared per share by IIP's AFFO per common share for the quarter). The common stock dividends declared for the twelve months ended December 31, 2023 totaled $7.22 per common share. IIP has increased its common stock dividends declared each year since its inception in 2016.
FFO, Normalized FFO and AFFO are supplemental non-GAAP financial measures used in the real estate industry to measure and compare the operating performance of real estate companies. A complete reconciliation containing adjustments from GAAP net income attributable to common stockholders to FFO, Normalized FFO and AFFO and definitions of terms are included at the end of this release.
Financing Activity
In October 2023, IIP Operating Partnership, LP, IIP's operating partnership subsidiary (the Operating Partnership), entered into a Loan Agreement with a federally regulated commercial bank, as lender and as agent for lenders that become party thereto from time to time. The Loan Agreement matures on October 23, 2026, and was upsized in February 2024 to provide for $45.0 million in aggregate commitments for a Revolving Credit Facility, the availability of which is based on a borrowing base consisting of real properties owned by subsidiaries (the Subsidiary Guarantors) of the Operating Partnership that satisfy eligibility criteria set forth in the Loan Agreement. The obligations of the Operating Partnership under the Loan Agreement are guaranteed by IIP and the Subsidiary Guarantors, and are secured by (i) operating accounts of the Operating Partnership into which lease payments under the real property included in the borrowing base are paid, (ii) the equity interest of the Subsidiary Guarantors, (iii) the real estate included in the borrowing base and the leases and rents thereunder, and (iv) all personal property of the Subsidiary Guarantors. Borrowings under the Loan Agreement bear interest at a variable rate based on the greater of the prime rate and an applicable margin based on deposits with the participating bank(s) and a stipulated interest rate. The Loan Agreement is subject to certain liquidity and operating covenants and includes customary representations and warranties, affirmative and negative covenants and events of default. The Loan Agreement also allows the Operating Partnership, subject to the satisfaction of certain conditions, to request additional revolving loan commitments up to a specified amount.
During the three months and year ended December 31, 2023, IIP issued 101,061 shares of its common stock under its ATM Program for net proceeds of approximately $9.6 million.
Subsequent to year-end, IIP exchanged approximately $4.3 million principal amount of its Exchangeable Senior Notes for a combination of cash and shares of IIP common stock prior to maturity, in accordance with the terms of the indenture, and paid off the remaining $100,000 principal amount at maturity.
Supplemental Information
Supplemental financial information is available in the Investor Relations section of IIP's website at www.innovativeindustrialproperties.com.
Teleconference and Webcast
Innovative Industrial Properties, Inc. will conduct a conference call and webcast at 10:00 a.m. Pacific Time (1:00 p.m. Eastern Time) on Tuesday, February 27, 2024 to discuss IIP's financial results and operations for the fourth quarter and year ended December 31, 2023. The call will be open to all interested investors through a live audio webcast at the Investor Relations section of IIP's website at www.innovativeindustrialproperties.com, or live by calling 1-877-328-5514 (domestic) or 1-412-902-6764 (international) and asking to be joined to the Innovative Industrial Properties, Inc. conference call. The complete webcast will be archived for 90 days on IIP's website. A telephone playback of the conference call will also be available from 12:00 p.m. Pacific Time on Tuesday, February 27, 2024 until 12:00 p.m. Pacific Time on Tuesday, March 5, 2024, by calling 1-877-344-7529 (domestic), 855-669-9658 (Canada) or 1-412-317-0088 (international) and using access code 9779220.
About Innovative Industrial Properties
Innovative Industrial Properties, Inc. is a self-advised Maryland corporation focused on the acquisition, ownership and management of specialized 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.
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 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.
INNOVATIVE INDUSTRIAL PROPERTIES, INC. |
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CONSOLIDATED BALANCE SHEETS |
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(Unaudited) |
||||||||
(In thousands, except share and per share amounts) |
||||||||
|
|
|
|
|
|
|
||
|
|
December 31, |
|
December 31, |
||||
Assets |
|
2023 |
|
2022 |
||||
Real estate, at cost: |
|
|
|
|
|
|
||
Land |
|
$ |
142,524 |
|
|
$ |
139,953 |
|
Buildings and improvements |
|
|
2,108,218 |
|
|
|
2,010,628 |
|
Construction in progress |
|
|
117,773 |
|
|
|
54,106 |
|
Total real estate, at cost |
|
|
2,368,515 |
|
|
|
2,204,687 |
|
Less accumulated depreciation |
|
|
(202,692 |
) |
|
|
(138,405 |
) |
Net real estate held for investment |
|
|
2,165,823 |
|
|
|
2,066,282 |
|
Construction loan receivable |
|
|
22,000 |
|
|
|
18,021 |
|
Cash and cash equivalents |
|
|
140,249 |
|
|
|
87,122 |
|
Restricted cash |
|
|
1,450 |
|
|
|
1,450 |
|
Investments |
|
|
21,948 |
|
|
|
200,935 |
|
Right of use office lease asset |
|
|
1,355 |
|
|
|
1,739 |
|
In-place lease intangible assets, net |
|
|
8,245 |
|
|
|
9,105 |
|
Other assets, net |
|
|
30,020 |
|
|
|
30,182 |
|
Total assets |
|
$ |
2,391,090 |
|
|
$ |
2,414,836 |
|
Liabilities and stockholders' equity |
|
|
|
|
|
|
||
Liabilities: |
|
|
|
|
|
|
||
Exchangeable Senior Notes, net |
|
$ |
4,431 |
|
|
$ |
6,380 |
|
Notes due 2026, net |
|
|
296,449 |
|
|
|
295,115 |
|
Building improvements and construction funding payable |
|
|
9,591 |
|
|
|
29,376 |
|
Accounts payable and accrued expenses |
|
|
11,406 |
|
|
|
10,615 |
|
Dividends payable |
|
|
51,827 |
|
|
|
50,840 |
|
Rent received in advance and tenant security deposits |
|
|
59,358 |
|
|
|
58,716 |
|
Other liabilities |
|
|
5,056 |
|
|
|
1,901 |
|
Total liabilities |
|
|
438,118 |
|
|
|
452,943 |
|
|
|
|
|
|
|
|
||
Stockholders' equity: |
|
|
|
|
|
|
||
Preferred stock, par value $0.001 per share, 50,000,000 shares authorized: 9.00% Series A cumulative redeemable preferred stock, $15,000 liquidation preference ($25.00 per share), 600,000 shares issued and outstanding at December 31, 2023 and December 31, 2022 |
|
|
14,009 |
|
|
|
14,009 |
|
Common stock, par value $0.001 per share, 50,000,000 shares authorized: 28,140,891 and 27,972,830 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively |
|
|
28 |
|
|
|
28 |
|
Additional paid-in capital |
|
|
2,095,789 |
|
|
|
2,065,248 |
|
Dividends in excess of earnings |
|
|
(156,854 |
) |
|
|
(117,392 |
) |
Total stockholders' equity |
|
|
1,952,972 |
|
|
|
1,961,893 |
|
Total liabilities and stockholders' equity |
|
$ |
2,391,090 |
|
|
$ |
2,414,836 |
|
INNOVATIVE INDUSTRIAL PROPERTIES, INC. |
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CONSOLIDATED STATEMENTS OF INCOME |
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For the Three Months and Years Ended December 31, 2023 and 2022 |
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(Unaudited) |
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(In thousands, except share and per share amounts) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
For the Three Months Ended |
|
For the Year Ended |
||||||||||||
|
|
December 31, |
|
December 31, |
||||||||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental (including tenant reimbursements) |
|
$ |
78,615 |
|
|
$ |
69,923 |
|
|
$ |
307,349 |
|
|
$ |
274,377 |
|
Other |
|
|
541 |
|
|
|
538 |
|
|
|
2,157 |
|
|
|
1,982 |
|
Total revenues |
|
|
79,156 |
|
|
|
70,461 |
|
|
|
309,506 |
|
|
|
276,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property expenses |
|
|
7,193 |
|
|
|
3,288 |
|
|
|
24,893 |
|
|
|
10,520 |
|
General and administrative expense |
|
|
10,908 |
|
|
|
10,232 |
|
|
|
42,832 |
|
|
|
38,520 |
|
Depreciation and amortization expense |
|
|
17,098 |
|
|
|
16,302 |
|
|
|
67,194 |
|
|
|
61,303 |
|
Total expenses |
|
|
35,199 |
|
|
|
29,822 |
|
|
|
134,919 |
|
|
|
110,343 |
|
Gain on sale of real estate |
|
|
? |
|
|
|
3,601 |
|
|
|
? |
|
|
|
3,601 |
|
Income from operations |
|
|
43,957 |
|
|
|
44,240 |
|
|
|
174,587 |
|
|
|
169,617 |
|
Interest and other income |
|
|
1,821 |
|
|
|
1,784 |
|
|
|
8,446 |
|
|
|
3,195 |
|
Interest expense |
|
|
(4,145 |
) |
|
|
(4,518 |
) |
|
|
(17,467 |
) |
|
|
(18,301 |
) |
Gain (loss) on exchange of Exchangeable Senior Notes |
|
|
? |
|
|
|
? |
|
|
|
22 |
|
|
|
(125 |
) |
Net income |
|
|
41,633 |
|
|
|
41,506 |
|
|
|
165,588 |
|
|
|
154,386 |
|
Preferred stock dividends |
|
|
(338 |
) |
|
|
(338 |
) |
|
|
(1,352 |
) |
|
|
(1,352 |
) |
Net income attributable to common stockholders |
|
$ |
41,295 |
|
|
$ |
41,168 |
|
|
$ |
164,236 |
|
|
$ |
153,034 |
|
Net income attributable to common stockholders per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
1.46 |
|
|
$ |
1.47 |
|
|
$ |
5.82 |
|
|
$ |
5.57 |
|
Diluted |
|
$ |
1.45 |
|
|
$ |
1.46 |
|
|
$ |
5.77 |
|
|
$ |
5.52 |
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
27,996,393 |
|
|
|
27,938,804 |
|
|
|
27,977,807 |
|
|
|
27,345,047 |
|
Diluted |
|
|
28,279,834 |
|
|
|
28,160,261 |
|
|
|
28,255,797 |
|
|
27,663,169 |
|
INNOVATIVE INDUSTRIAL PROPERTIES, INC. |
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CONSOLIDATED FFO, NORMALIZED FFO AND AFFO |
||||||||||||||||
For the Three Months and Years Ended December 31, 2023 and 2022 |
||||||||||||||||
(Unaudited) |
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(In thousands, except share and per share amounts) |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
For the Three Months Ended |
|
For the Year Ended |
||||||||||||
|
|
December 31, |
|
December 31, |
||||||||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Net income attributable to common stockholders |
|
$ |
41,295 |
|
$ |
41,168 |
|
|
$ |
164,236 |
|
|
$ |
153,034 |
|
|
Real estate depreciation and amortization |
|
|
17,098 |
|
|
|
16,302 |
|
|
|
67,194 |
|
|
|
61,303 |
|
Gain on sale of real estate |
|
|
? |
|
|
|
(3,601 |
) |
|
|
? |
|
|
|
(3,601 |
) |
FFO attributable to common stockholders (basic) |
|
|
58,393 |
|
|
|
53,869 |
|
|
|
231,430 |
|
|
|
210,736 |
|
Cash and non-cash interest expense on Exchangeable Senior Notes |
|
|
50 |
|
|
|
72 |
|
|
|
219 |
|
|
|
546 |
|
FFO attributable to common stockholders (diluted) |
|
|
58,443 |
|
|
|
53,941 |
|
|
|
231,649 |
|
|
|
211,282 |
|
Financing expense |
|
|
? |
|
|
|
249 |
|
|
|
? |
|
|
|
367 |
|
Litigation-related expense |
|
|
152 |
|
|
|
779 |
|
|
|
2,480 |
|
|
|
3,010 |
|
Loss (gain) on exchange of Exchangeable Senior Notes |
|
|
? |
|
|
|
? |
|
|
|
(22 |
) |
|
|
125 |
|
Normalized FFO attributable to common stockholders (diluted) |
|
|
58,595 |
|
|
|
54,969 |
|
|
|
234,107 |
|
|
|
214,784 |
|
Interest income on seller-financed note(1) |
|
|
403 |
|
|
|
? |
|
|
|
1,342 |
|
|
|
? |
|
Stock-based compensation |
|
|
4,934 |
|
|
|
4,312 |
|
|
|
19,581 |
|
|
|
17,507 |
|
Non-cash interest expense |
|
|
383 |
|
|
|
321 |
|
|
|
1,375 |
|
|
|
1,255 |
|
Above-market lease amortization |
|
|
23 |
|
|
|
23 |
|
|
|
92 |
|
|
|
91 |
|
AFFO attributable to common stockholders (diluted) |
|
$ |
64,338 |
|
|
$ |
59,625 |
|
|
$ |
256,497 |
|
|
$ |
233,637 |
|
FFO per common share ? diluted |
|
$ |
2.07 |
|
|
$ |
1.92 |
|
|
$ |
8.20 |
|
|
$ |
7.64 |
|
Normalized FFO per common share ? diluted |
|
$ |
2.07 |
|
|
$ |
1.95 |
|
|
$ |
8.29 |
|
|
$ |
7.76 |
|
AFFO per common share ? diluted |
|
$ |
2.28 |
|
|
$ |
2.12 |
|
|
$ |
9.08 |
|
|
$ |
8.45 |
|
Weighted average common shares outstanding ? basic |
|
|
27,996,393 |
|
|
|
27,938,804 |
|
|
|
27,977,807 |
|
|
|
27,345,047 |
|
Restricted stock and RSUs |
|
|
206,667 |
|
|
|
117,831 |
|
|
|
196,821 |
|
|
|
116,046 |
|
Dilutive effect of Exchangeable Senior Notes |
|
|
76,774 |
|
|
|
103,626 |
|
|
|
81,169 |
|
|
|
202,076 |
|
Weighted average common shares outstanding ? diluted |
|
|
28,279,834 |
|
|
|
28,160,261 |
|
|
|
28,255,797 |
|
|
|
27,663,169 |
|
____________ |
||
(1) |
Amount reflects the non-refundable interest paid on the seller-financed note issued to IIP by the buyer in connection with IIP's disposition of a portfolio of four properties in southern California, which is recognized as a deposit liability and is included in other liabilities in IIP's consolidated balance sheet as of December 31, 2023, as the transaction did not qualify for recognition as a completed sale. |
FFO and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts, Inc. (NAREIT). NAREIT defines FFO as the most commonly accepted and reported measure of a REIT's operating performance equal to net income, computed in accordance with accounting principles generally accepted in the United States (GAAP), excluding gains (or losses) from sales of property, depreciation, amortization and impairment related to real estate properties, and after adjustments for unconsolidated partnerships and joint ventures.
Management believes that net income, as defined by GAAP, is the most appropriate earnings measurement. However, management believes FFO and FFO per share to be supplemental measures of a REIT's performance because they provide an understanding of the operating performance of IIP's properties without giving effect to certain significant non-cash items, primarily depreciation expense. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. However, real estate values instead have historically risen or fallen with market conditions. IIP believes that by excluding the effect of depreciation, FFO and FFO per share can facilitate comparisons of operating performance between periods. IIP reports FFO and FFO per share because these measures are observed by management to also be the predominant measures used by the REIT industry and industry analysts to evaluate REITs and because FFO per share is consistently reported, discussed, and compared by research analysts in their notes and publications about REITs. For these reasons, management has deemed it appropriate to disclose and discuss FFO and FFO per share.
IIP computes Normalized FFO by adjusting FFO, as defined by NAREIT, to exclude certain GAAP income and expense amounts that management believes are infrequent and unusual in nature and/or not related to IIP's core real estate operations. Exclusion of these items from similar FFO-type metrics is common within the equity REIT industry, and management believes that presentation of Normalized FFO and Normalized FFO per share provides investors with a metric to assist in their evaluation of IIP's operating performance across multiple periods and in comparison to the operating performance of other companies, because it removes the effect of unusual items that are not expected to impact IIP's operating performance on an ongoing basis. Normalized FFO is used by management in evaluating the performance of its core business operations. Items included in calculating FFO that may be excluded in calculating Normalized FFO include certain transaction-related gains, losses, income or expense or other non-core amounts as they occur.
Management believes that AFFO and AFFO per share are also appropriate supplemental measures of a REIT's operating performance. IIP calculates AFFO by adjusting Normalized FFO for certain cash and non-cash items.
For all periods presented, FFO (diluted), Normalized FFO, AFFO and FFO, Normalized FFO and AFFO per diluted share include the dilutive impact of the assumed full exchange of the Exchangeable Senior Notes for shares of common stock.
For all periods presented, as the performance thresholds for vesting of the performance share units were not met as measured as of the respective dates, they were excluded from the calculation of weighted average common shares outstanding ? diluted.
IIP's computation of FFO, Normalized FFO and AFFO may differ from the methodology for calculating FFO, Normalized FFO and AFFO utilized by other equity REITs and, accordingly, may not be comparable to such REITs. Further, FFO, Normalized FFO and AFFO do not represent cash flow available for management's discretionary use. FFO, Normalized FFO and AFFO should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of IIP's financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of IIP's liquidity, nor is it indicative of funds available to fund IIP's cash needs, including IIP's ability to pay dividends or make distributions. FFO, Normalized FFO and AFFO should be considered only as supplements to net income computed in accordance with GAAP as measures of IIP's operations.
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