Innovative Industrial Properties Inc: Cannabis REIT Continues to Impress, Stronger Gains Coming

Innovative Industrial Properties Inc Outpacing Broader Market

Innovative Industrial Properties Inc (NYSE:IIPR) is a real estate income trust (REIT) that we’ve been following for quite some time. And for good reason. It’s arguably the best equity in the cannabis sector.

When we last took a look at IIPR stock just one month ago, it was already up 96% year-to-date. Despite the correction hampering U.S. marijuana stocks, IIPR has continued to soar.

Since the start of 2019, Innovative Industrial Properties stock has risen by 170%. Meanwhile, the S&P 500 has only risen by approximately 18%. Over the last 52 weeks, the company’s share price has advanced 231%. Over the same time frame, the S&P 500 has only eked out less than a 4.2% gain.

Why the phenomenal momentum? Innovative Industrial Properties recently reported another quarter of strong financial results and announced an increase to its quarterly dividend. And since the start of the year, the company has acquired about 10 properties.

All of that explains the company’s ability to report strong revenue and earnings growth.

Innovative Industrial Properties Inc Overview

Innovative Industrial Properties is the landlord to some of the biggest names in the legal cannabis industry.

The San Diego, California-based company buys land from licensed medical cannabis companies and leases it back to them. Doing so provides the marijuana companies with an injection of cash, which it can then use to develop their own operations.

Innovative Industrial Properties targets well-funded medical cannabis companies in the $5.0 to $30.0 million range and signs them up to leases of 10 to 20 years. The company then increases rent annually by up to 4.5%, providing it with an inflation-beating revenue stream. (Source: “Sale/Leaseback Opportunities,” Innovative Industrial Properties Inc, last accessed June 18, 2019.)

As the leading REIT for the medical cannabis industry, IIPR’s portfolio currently stands at 21 properties in 11 states, covering 1.6 million square feet. And there’s a 100% occupancy rate. (Source: “Innovative Industrial Properties Acquires Pennsylvania Property and Enters Into Long-Term Lease with Green Leaf Medical,” Innovative Industrial Properties Inc, May 20, 2019.)

On May 20, the company announced that it acquired a 266,000-square-foot industrial property in Saxton, Pennsylvania for $13.0 million and leased that property back to a subsidiary of Green Leaf Medical, LLC. (Source: Ibid.)

On June 14, Innovative Industrial Properties announced a second-quarter dividend of $0.60 per share, for an annual dividend of $2.40 per share. (Source: “Innovative Industrial Properties Declares Second Quarter 2019 Dividends,” Innovative Industrial Properties Inc, June 14, 2019.)

This represents a 33% increase over the $0.45-per-share dividend in the 2019 first quarter and a 140% increase over the $0.25 in the 2018 second quarter. It is the ninth consecutive quarter that IIPR has paid a dividend since holding its initial public offering in December 2016. (Source: “Dividend History,”  Innovative Industrial Properties Inc, last accessed June 18, 2019.)

Innovative Industrial Properties Stock

(Source: “Innovative Industrial Properties, Inc. (IIPR),” Yahoo! Finance, last accessed June 18, 2019.)

Innovative Industrial Properties stock has soared 280% since the start of 2018.

In May 2019, at a time when U.S. cannabis stocks were in retreat, Innovative Industrial Properties held its own. The downward pressure hitting American marijuana stocks has carried into June. The same cannot be said for IIPR stock; it’s up 48% this month.

Despite its strong gains in 2019, Innovative Industrial Properties shares still have lots of upside potential, with Wall Street analysts projecting a 12-month estimate of $160.00. That would be roughly a 30% gain from the current price

Wall Street analysts are notoriously conservative, so that projection could be a little light. A 12-month forecast of $180.00 is not out of the question.

Chart courtesy of StockCharts.com

Q1 Rental Revenue Up 146%, Net Income Advances 444%

On May 8, Innovative Industrial Properties reported that its rental revenue for the first quarter increased 146% year-over-year to $6.6 million. Its net income was up 444% at $3.3 million, or $0.33 per diluted share. (Source: “Innovative Industrial Properties Reports First Quarter 2019 Results,” Innovative Industrial Properties Inc, May 8, 2019.)

Adjusted funds from operations (AFFO) grew 275% year-over-year to $5.3 million, or $0.54 per share. AFFO is is used in the real estate industry to measure the operating performance of real estate companies.

Analyst Take

Innovative Industrial Properties Inc has been one of the most reliable players in the cannabis field. It’s the only REIT on the New York Stock Exchange that is focused on the U.S. medical cannabis industry.

The company’s acquisitions have helped it report strong revenue, earnings, and AFFO growth. That has helped IIPR provide buy-and-hold investors with strong capital appreciation and dividend growth. And it should continue to do so.

Innovative Industrial Properties stock will become even more exciting when recreational marijuana is eventually legalized in the U.S. at the federal level.