Innovative Industrial Properties Stock Is Worth Watching Right Now
If you missed out on the spring 2020 stock market rally and have been waiting to take advantage of a pullback, now might be the perfect time. If you’re a cannabis stock investor, one of the best stocks to have experienced a pullback is Innovative Industrial Properties Inc (NYSE:IIPR).
As you can see in the chart below, IIPR stock was trading near record levels at the end of 2021. Investors who were hoping the Santa Claus rally would dovetail nicely with the January Effect (a theory that stocks will go up for most of January each year) must have been disappointed.
Now trading at its lowest levels since June 2021, Innovative Industrial Properties stock is down by 28% year-to-date and 35% from its November 2021 high.
On the bright side, this contraction doesn’t have much to do with anything happening at Innovative Industrial Properties Inc. The company has been reporting high revenue growth, ongoing profitability, a raft of new acquisitions, and high-yield dividends.
Despite the company’s stellar business performance, IIPR stock has been getting punished.
Wall Street analysts think it’s a temporary blip, though. Their average 12-month price target for Innovative Industrial Properties stock is $262.50 and their high estimate is $300.00. This points to potential gains of 39% and 51%, respectively.
Chart courtesy of StockCharts.com
About IIPR Stock
Founded in 2016, Innovative Industrial Properties is the first publicly traded company on the New York Stock Exchange (NYSE) to provide real estate capital to the medical cannabis industry. (Source: “Our Business,” Innovative Industrial Properties Inc, last accessed March 7, 2022.)
Because marijuana is still illegal in the U.S. at the federal level, it’s difficult for cannabis companies to find capital. That’s where Innovative Industrial Properties Inc comes in.
The San Diego, CA-based real estate investment trust (REIT) acquires properties from medical marijuana growers and provides those companies with capital to develop their operations. The cannabis companies then rent the properties back from Innovative Industrial Properties Inc.
The REIT targets well-funded medical cannabis companies in the $5.0 to $30.0 million range and signs them up to long-term leases of 10 to 20 years.
Innovative Industrial Properties increases its rents by three percent to 4.5% annually, resulting in a reliable revenue stream.
Innovative Industrial Properties Inc on an Acquisition Tear
To bring in additional money, Innovative Industrial Properties Inc has been acquiring more properties to rent out.
In 2020, when many cash-strapped marijuana businesses were hunkering down and looking for ways to save money, Innovative Industrial Properties Inc was swooping in and snapping up properties. At the start of that year, the REIT’s portfolio consisted of 47 properties. By the end of 2020, the number stood at 66.
The REIT’s torrid pace of property acquisition continued in 2021, closing out that year with a total of 76 properties.
As of February 10, 2022, Innovative Industrial Properties owned 105 properties. (Source: “Innovative Industrial Properties Acquires New Jersey Property and Expands Real Estate Partnership with AWH,” Innovative Industrial Properties Inc, February 10, 2022.)
In February, the company closed on the $35.4-million acquisition of a 114,000-square-foot property in New Jersey. It also entered a long-term lease with a subsidiary of Ascend Wellness Holdings Inc (CNSX:AAWH.U, OTCBB:AAWH) at the property.
Ascend Wellness Holdings is expected to complete additional improvements to the property as a regulated cannabis cultivation and processing facility. Innovative Industrial Properties has agreed to provide reimbursements of up to $4.6 million.
Assuming full reimbursement for the tenant’s improvements, Innovative Industrial Properties Inc’s total investment in the property is expected to be $40.0 million. Ascend Wellness Holdings Inc is planning to build out its overall New Jersey cultivation footprint to include a lab, kitchen, and 150,000 square feet of canopy by the end of 2023.
In addition to this New Jersey property, Innovative Industrial Properties Inc owns and leases out three other properties to Ascend Wellness Holdings (in Illinois, Massachusetts, and Michigan). Innovative Industrial Properties’ total investment in properties leased to Ascend Wellness Holdings Inc, including commitments to fund future tenant improvements, equal approximately $179.8 million.
Over the last few years, Innovative Industrial Properties Inc has acquired cannabis-related properties in several states. Combined, the properties cover approximately 7.9 million rentable square feet. Innovative Industrial Properties has committed $2.1 billion (excluding transaction costs) and additional capital costs to fund future construction and improvements at its properties.
From October 1, 2021 through February 23, 2022, Innovative Industrial Properties Inc acquired 31 properties in California, Colorado, Massachusetts, Michigan, New Jersey, North Dakota, and Pennsylvania. The company also executed two lease amendments to provide additional improvements to properties in Massachusetts and Michigan.
These transactions represent an aggregate investment by Innovative Industrial Properties of $250.1 million.
Innovative Industrial Properties Inc Raises Dividend by 20%
As a REIT, Innovative Industrial Properties is legally obligated to distribute at least 90% of its taxable income to investors in the form of dividends.
In December 2021, the company announced a fourth-quarter dividend of $1.50 per share. That was a 20% year-over-year increase. It was IIPR stock’s 12th dividend increase since the company completed its initial public offering (IPO) in December 2016. (Source: “Innovative Industrial Properties Declares Fourth Quarter 2021 Dividends,” Innovative Industrial Properties Inc, December 15, 2021.)
As of this writing, Innovative Industrial Properties stock’s dividend yield is 3.2%.
Going forward, Innovative Industrial Properties Inc’s board said it expects to evaluate its quarterly dividend every six months, with any adjustments being declared in the first and third quarter of the year.
High Revenue Growth in Q4
For the fourth quarter ended December 31, 2021, Innovative Industrial Properties Inc announced that its revenue increased by 59% year-over-year to $58.9 million. (Source: “Innovative Industrial Properties Reports Fourth Quarter and Full-Year 2021 Results,” Innovative Industrial Properties Inc, February 23, 2022.)
Not surprisingly, the big revenue gain was a result of new acquisitions, the leasing out of new properties, and rent hikes.
The company also reported fourth-quarter 2021 net income of $28.3 million, or $1.14 per share. That was a 34% increase over the fourth-quarter 2020 net income of $20.9 million, or $0.91 per share.
Innovative Industrial Properties Inc’s adjusted funds from operations (AFFO) in the fourth quarter of 2021 were $48.6 million, or $1.85 per share. That was more than enough to cover IIPR stock’s quarterly payout of $1.50 per share. Moreover, it was a 49% increase over the fourth-quarter 2020 AFFO of $32.5 million, or $1.30 per share.
The company ended the fourth quarter of 2021 with $406.0 million in cash, cash equivalents, and short-term investments.
Innovative Industrial Properties stock might be the best U.S. pot stock when it comes to growth and income.
This is a result of Innovative Industrial Properties Inc’s aggressive acquisition strategy, which helps the company report strong revenue, earnings, and AFFO growth. This, in turn, has helped IIPR stock provide buy-and-hold investors with significant capital appreciation and dividend growth—and it should continue to do so.