Innovative Industrial Properties Inc: Marijuana REIT Up 96% in 2019, Just Getting Started

Innovative Industrial Properties Inc: Strong Momentum, Huge Opportunity

Innovative Industrial Properties Inc (NYSE:IIPR) is one of the best stocks in the cannabis sector, but few people seem to be talking about it. That is surprising, given that IIPR stock is up more than 150% over the last 52 weeks and has advanced 96% since the start of the year. It also provides investors with a 2.11% annual dividend ($0.45 per share paid quarterly).

Innovative Industrial Properties Inc is a real estate income trust (REIT) that specializes in cannabis properties. It’s basically the landlord to some of the industry’s biggest players. The company continues to report strong quarterly results and has an aggressive acquisition strategy that is helping fuel growth.

Since the start of 2019, it has announced around 10 acquisitions. Management continues to create opportunities for growth and investors have been reaping the rewards.

IIPR Overview

Founded in December 2016, Innovative Industrial Properties Inc is the first publicly traded company on the New York Stock Exchange (NYSE) to provide real estate capital to the medical-use cannabis industry.

IIPR purchases land from experienced, licensed medical-use cannabis operators and then leases the land back to them. Selling the properties to IIPR and then leasing them back allows the growers to use those proceeds to develop their company’s core operations. (Source: “Our Business,” Innovative Industrial Properties Inc, last accessed May 24, 2019.)

The kind of properties IIPR targets are worth $5.0 million to $30.0+ million and have expansion capital available, lease terms of 10 years to 20 years, annual base rent increases of three percent to 4.5%, and closing times of 30 days to 60 days from signed purchase and sale agreement. (Source: “Sale/Leaseback Opportunities,” Innovative Industrial Properties Inc, last accessed May 24, 2019.)

As of May 20, 2019, Innovative Industrial Properties Inc owns 21 properties located in Arizona, California, Colorado, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Ohio, and Pennsylvania, totaling roughly 1.6 million rentable square feet. Of that total, 221,000 square feet are under development/redevelopment.

The company’s properties are 100% leased with a weighted-average remaining lease term of roughly 15.1 years. IIPR’s average current yield on invested capital is approximately 14.7% for these 21 properties. (Source: “Innovative Industrial Properties Investor Presentation,” Innovative Industrial Properties Inc, May 23, 2019.)

As a REIT, Innovative Industrial Properties Inc is legally obligated to distribute at least 90% of its taxable income to investors in the form of a dividend. In March, it declared a first-quarter dividend of $0.45 per share.

This represents a 29% increase over IIPR’s fourth-quarter 2018 dividend of $0.35 per share and an 80% increase over its first-quarter 2018 dividend of $0.25 per share.

It is also the eighth consecutive quarterly dividend IIPR has paid to common stockholders since the company completed its initial public offering (IPO) in December 2016. (Source: “Dividend History,” Innovative Industrial Properties Inc, last accessed May 24, 2019.)

Innovative Industrial Properties Inc Stock

(Source: “Innovative Industrial Properties, Inc. (IIPR),” Yahoo! Finance, last accessed May 24, 2019.)

IIPR stock has, for the most part, been bullish since December 2017, advancing 405%. The reason? It continues to acquire properties with long-term leases that provide it with reliable revenue streams.

Chart courtesy of StockCharts.com

IIPR Acquires Pennsylvania Property and Enters Long-Term Lease with Green Leaf Medical

Most recently, Innovative Industrial Properties Inc announced on May 20 that it acquired a property in Saxton, Pennsylvania for $13.0 million. The property consists of two buildings with 226,000 square feet of industrial space. (Source: “Innovative Industrial Properties Acquires Pennsylvania Property and Enters Into Long-Term Lease with Green Leaf Medical,” Innovative Industrial Properties Inc, May 20, 2019.)

Innovative Industrial Properties Inc entered into a long-term lease agreement with a subsidiary of privately held Green Leaf Medical, LLC, which intends to operate the property as a licensed medical-use cannabis cultivation and processing facility.

Green Leaf Medical has redeveloped approximately 103,000 square feet of space for medical-use cannabis cultivation and processing, with the remaining 163,000 square feet of space set aside for future redevelopment.

Acquisitions Drive 146% Q1 Rental Revenue, 444% Q1 Net Income

On May 8, Innovative Industrial Properties Inc announced its financial results for the first quarter ended March 31, 2019.

The company generated rental revenue of approximately $6.6 million, a year-over-year increase of 146%. (Source: “Innovative Industrial Properties Reports First Quarter 2019 Results,” Innovative Industrial Properties Inc, May 8, 2019.)

Net income came in at $3.3 million ($0.33 per share), a 444% increase over the $607,000 ($0.09 per diluted share) in the same prior-year period. Adjusted funds from operations (AFFO) was $5.3 million ($0.54 per share), a 275% increase over the $1.4 million ($0.23 per share) from the prior year’s first quarter.

Analyst Take

Innovative Industrial Properties Inc is in a unique spot. It is the first and only REIT on the NYSE focused on the regulated U.S. cannabis industry. It currently owns 21 facilities, which have a 100% occupancy rate.

Thanks to its aggressive acquisition strategy, the company continues to report strong revenue, net income, FFO, and AFFO growth. And investors continue to reward the company with a higher share price.

IIPR stock has made strong gains of late. While this may give investors pause, believing it is too pricey, management continues to give investors reason to cheer.

Because of its strong cash position (cash and cash equivalents of $59.2 million) and short-term investments of $197.7 million, Innovative Industrial Properties Inc’s flurry of acquisitions should continue, along with its strong financial results.