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IIPR

Innovative Industrial Properties NYSE:IIPR Stock Report

Last Price

US$101.68

Market Cap

US$2.8b

7D

5.5%

1Y

-55.6%

Updated

18 Aug, 2022

Data

Company Financials +
IIPR fundamental analysis
Snowflake Score
Valuation5/6
Future Growth3/6
Past Performance2/6
Financial Health4/6
Dividends4/6

IIPR Stock Overview

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 medical-use cannabis facilities.

Innovative Industrial Properties, Inc. Competitors

Price History & Performance

Summary of all time highs, changes and price drops for Innovative Industrial Properties
Historical stock prices
Current Share PriceUS$101.68
52 Week HighUS$288.02
52 Week LowUS$88.38
Beta1.64
1 Month Change14.20%
3 Month Change-22.51%
1 Year Change-55.61%
3 Year Change-4.38%
5 Year Change483.03%
Change since IPO430.97%

Recent News & Updates

Aug 19

Innovative Industrial: Separating The 'Weed' From The Chaff

IIPR has been a “cash cow” over the last three years, generating eye-popping growth of 100% in 2018, 144% in 2019, 53% in 2020, and 33% in 2021. No other REIT could come close to this type of growth. However, growth has slowed, and shares are now trading at bargain-basement levels. Conservatively, IIPR could return to a multiple of 18.3x, which means shares could return around 50% annualized. I’m sure you’ve heard the expression “separating the wheat from the chaff” without any real understanding of its meaning (unless you grew up as a farmer). The website wholegrainscouncil.org explains it like this: “In cereal crops like wheat, rice, barley, oats and others the seed – the grain kernel we eat – grows on the plant with an inedible hull (also sometimes called a husk) surrounding it. Before we can eat the grain kernel, we need to remove that inedible hull… Traditionally, farmers would toss this kind of grain into the air, from big flat baskets, letting the thin hulls – called chaff in Middle English – blow away in the wind, or fall through the chinks in the basket. This wind-assisted process for separating the wheat from the chaff is called winnowing and the grains with almost no hull are called “naked” grains.” Now, let be perfectly clear, I’m not here to provide you with a farming lesson, I’ll save that for when I write about Farmland Partners (FPI) or Gladstone Land (LAND). Instead, I’m here to provide you with a much-needed update on the “weed” REIT, Innovative Industrial Properties, Inc. (IIPR). My very first article on Innovative Industrial Properties was back in 2018, in which I explained, “Cash flow growing so fast it could support some of the fastest long-term dividend growth in all of REITdom, thus potentially generating excellent long-term total returns for risk-tolerant investors.” As illustrated below, IIPR has been a “cash cow” over the last three years, generating eye-popping growth (based on AFFO per share) of 100% in 2018, 144% in 2019, 53% in 2020, and 33% in 2021. No other REIT could come close to this type of growth: FAST Graphs Of course, the total returns generated by IIPR during this period was even more impressive: 2018: 45% 2019: 70% 2020: 150% 2021: 47% Are you tracking? Had you purchased shares in my IIPR article written in November 2018 and sold on December 31, 2021, you would have generated a return of 450% or around 72% annualized: FAST Graphs Only I was so lucky, right? 2022 has been a train wreck for IIPR and the cannabis sector as a whole. To be fair, had someone purchased IIPR in November 2019 and held thru today, your shares would have returned 139% or around 26% annualized…still ahead though! FAST Graphs That’s a big delta…450% versus 139%... Cleary this means there has been more sellers than buyers… Which one are you? (respond in the comment section below) I’m Encouraged (The Bull Case) A few days ago, I posted on the iREIT on Alpha chat board that IIPR’s chairman, Alan Gold, has become an active buyer of IIPR, as he purchased roughly ~$100,000 on Friday and another ~$100,000 on Monday, bringing his total investment in the cannabis REIT to ~270,000 shares (.96% outstanding or $28 million in value). I’m happy to see the Chairman and Founder put some skin in the game. If you didn’t know already, Gold was previously CEO and founder of Life Science REIT, BioMed, that sold to Blackstone (BX) for ~$8 billon in early 2016. As seen below, the market has responded favorably: Yahoo Finance Skin in the game is a great catalyst, although I’m hoping to see Gold add a few more chips to the stack. Other positive news supporting our buy thesis has to do with the rapid growth within the cannabis sector. U.S. regulated cannabis sales were $24 billion in 2020, and are expected to grow to $46 billion by 2026. There are over 428,000 full time U.S. cannabis industry employees in 2021, representing over 30% growth year-over-year. New Jersey commenced adult-use sales on 4/21/22, and 12 dispensaries sold $1.9 million of recreational cannabis on the first day. These results were in-line with New Mexico’s 4/1/22 adult-use start (also $1.9M), but trailed Illinois’ first day sales of $3.2M (on 1/1/20). The average “basket size” in NJ of $153/person far exceeded those in IL and NM ($42 and $66/person, respectively), while NJ’s dispensary count (12) is a fraction of that in IL (37 on 1/1/20) and NM (118). Other states that plan to commence adult-use sales are Connecticut, New York and Virginia (15th largest state), while Maryland (9th largest state) and Pennsylvania (largest state) are expected to legalize in 2023 and 2024, respectively. Currently, 38 U.S. states and D.C. have legalized cannabis for medical use representing a large majority of where the U.S. population lives. 18 U.S. states have legalized cannabis for adult-use, while 93% of Americans support patient access to medical-use cannabis and 68% of Americans supported full legalization of cannabis (according to a 2019 poll by Quinnipiac University: 2021 poll by Gallup). Also, according to Arcview Market Research and BDS Analytics, 100% of U.S. states will offer cannabis by 2025 - 100% of U.S. states are forecasted to have medical cannabis by 2025; nearly 50% expected to have adult-use legalization. Thus, we view the biggest catalyst for cannabis to be the fact that the sector is in its early stages, and REITs like IIPR are well-positioned to capitalize on the continued growth (albeit more modest as I’ll discuss below). In regard to IIPR, the company has a first-mover advantage in that it is the first and only publicly traded company on the New York Stock Exchange to provide real estate capital to the regulated cannabis industry. This is beneficial in two ways. First, IIPR has a portfolio of 109 properties in 19 states, and these Top 10 tenants represent ~75% of the company’s invested capital and stabilized revenue: IIPR Investor Deck Now, I highlighted one of these operators, Kings Garden, because I plan to discuss this in the “Bear” section; however, it’s important to recognize here that most of the leases are master leases and that IIPR’s first-mover position has created a competitive advantage in terms of deal sourcing and follow-up capital opportunities with existing tenants. Also, IIPR has always maintained very low leverage, as of Q2-22 the company had approximately $2.5 billion in total gross assets and a total of about $306.5 million in debt, consisting solely of unsecured debt with no maturities in 2022 or 2023 (~$300 million of that debt not maturing until 2026). IIPR’s debt to total gross assets ratio decreased to 12% at Q2-22 and the company’s total fixed cash interest obligation on an annual basis was $16.7 million, or a little over $4 million per quarter. IIPR maintained its investment grade credit rating with a debt service coverage ratio of 15.7x. Also, as of Q2-22 the company’s payout ratio (based on AFFO per share) was 82%, within the target range of 75% to 85% of AFFO. I’ll touch on valuation later in this article, but I wanted to point out here that IIPR’s dividend yield is 6.7%. I don’t know of any other REIT with just 12% of debt has a yield that high. The Bear Case Clearly there are risks to the cannabis sector, and while I’m encouraged with the growth prospects of the cannabis industry, the biggest overhang for the industry has to do with federal legislation, or the SAFE Banking Act that remains the most potentially viable near-term legislation. I recently interviewed the management team at Chicago Atlantic (REFI), a newly listed cannabis mREIT. They told me, “…I think when SAFE Act happens… because we are in the same belief that it's not an if but when… I think that we'll be just as full of beneficiaries of the reduction of cost of capital and borrowers, if not more, given the fact of our track record and history.” In my view, the biggest overhang for the cannabis REIT sector is Federal legislation because it will provide for new funding sources to cannabis operators and the opportunity for interstate commerce. Currently, the cannabis REITs have a unique moat in that they provide much-needed capital for the growing cannabis operators. We now have five cannabis REITs in our coverage spectrum: Innovative Industrial: $2.9 Billion Market Cap NewLake Capital (NLCP): $372 million Market Cap AFC Gamma (AFCG): $370 million Market Cap Chicago Atlantic: $287 million Market Cap Power REIT (PW): $63 million Market Cap Keep in mind, the market cap of NLCP, IIPR, and PW would be almost double today had in not been for the selloff in the sector YTD: Yahoo Finance Now, one of the reasons that I favor IIPR is because of the company’s scale advantage, and of course the company’s management team is now being tested with its first large tenant default. As seen below, on July 25, 2022 IIPR filed a Breach of Contract Complaint versus Kings Garden, Inc., IIPR’s 4th largest tenant: CA Superior Court Upon reviewing the Complaint, it appears that IIPR had requested to access one of the Kings Garden buildings on July 20, 2022, to inspect and take inventories: CA Superior Court On July 19, 2022, the tenant responded with an email stating the CEO was “out of the country”: CA Superior Court As I said, the lawsuit was then filed on July 25th and then IIPR filed the following Amended Complaint on August 2nd: CA Superior Court

Aug 03

Innovative Industrial Properties FFO of $1.97 misses by $0.01, revenue of $70.51M beats by $1.44M

Innovative Industrial Properties press release (NYSE:IIPR): Q2 FFO of $1.97 misses by $0.01. Revenue of $70.51M (+44.3% Y/Y) beats by $1.44M.

Jul 27

Innovative Industrial Properties: One Of The Few REITs We're Interested In

Innovative Industrial Properties can be parted from the rest of the REIT space due to the Cannabis industry's value-added licensing requirements, which add to property appraisals. The secular growth of its tenants isn't priced into the REIT's traded value after a more than 60% year-to-date drawdown. Its high portfolio concentration with long-life leases could pay off. Valuation remains subjective. However, Innovative Industrial Properties provides a stunning dividend yield at its current price. We assign an indefinite buy rating to Innovative Industrial Properties with a year-end revision in mind. We're generally bearish on REITs. However, we've realized that many investors are eager to invest in the domain. Therefore, we looked for an asset that could be parted from the rest of the REIT arena. After its more than 60% year-to-date drawdown, Innovative Industrial Properties (IIPR) is likely oversold and possesses secular growth prospects that could ignite a price rebound while providing a staggering dividend yield. There's a lot of froth in the legal cannabis industry due to a "green gold rush" scenario, which has been exacerbated by easy access to capital via liberalized financial markets. However, we see Innovative Industrial Properties as a "best in class" cannabis play with its phenomenally constructed REIT. Data by YCharts A Parsimonious Cannabis REIT Outlook If you read our article about Vanguard Real Estate ETF (NYSEARCA:VNQ), you'd know that we're generally bearish on REITs, even if their tenants operate in industries with high embedded growth. However, we see the Cannabis industry as an exception due to its early-stage nature and the high-beta asset category coefficient sell-off we saw earlier this year. Furthermore, Cannabis properties are often prime targets for private equity firms as they're value-added projects that need to endure a rigorous licensing process to be "cultivation ready". Innovative Industrial Properties' Staggering Growth In our opinion, Innovative Industrial properties is a "best in class" asset. We like the company's sale-leaseback program as it allows the fund to enter at an optimal risk/reward stage. To elaborate, the company will provide financing to companies that are license ready, meaning the REIT essentially avoids early-stage sunk capital risk but instead provides expansionary capital to its tenants. As such, the REIT is able to monetize its investments promptly at sumptuous yields. The two growth charts below illustrate Innovative Industrial Properties' recently progress. The prior forecasts a Cannabis market compound annual growth rate of 15.3% until 2030; however, Innovative Industrial Properties' 3-year realized compound annual growth rate of 1.29x trumps the underlying industry's sales growth. Therefore, it's valid to conclude that Innovative Industrial Properties is well positioned in the legal cannabis value chain by capturing growth through its vertically integrated real estate investments. Grandview Research Revenue 3y CAGR 1.29x EBITDA 3Y CAGR 1.57x Levered FCF 3y CAGR 1.18x Source: Seeking Alpha Innovative Industrial Properties holds a strong portfolio of assets. The firm's top ten holdings form nearly 75% of its portfolio, which many would argue is overly concentrated. However, there's a lot of froth in the Cannabis market, meaning that a narrow investment portfolio might not be a bad option. Innovative Industrial Properties Let's review a few of its portfolio companies' annual growth rates to contextualize the value being added to their properties. Company Revenue Growth Holding Size Ascend Wellness (AAWH) 87.60% (YoY) 9.4% Columbia Care (CCHWF) 125.50% (3y CAGR) 7% Trulieve (TCNNF) 100.41% (3y CAGR) 6.7% Green Thumb (GTBIF) 127.98% (3y CAGR) 5.7% Cresco Labs (CRLBF) 145.44% (3y CAGR) 5.7% Curaleaf (CURLF) 130.39% (3y CAGR) 5.1% Source: Seeking Alpha Although promising, the growth figures above need to be looked at in context as factors such as legislation & policy, industry saturation, and consumer strength could all play a role in determining long-term growth rates. Nonetheless, we believe the REIT's portfolio and the long-duration nature of its leases could coalesce into sustainable cash flows. The ETF generally holds its tenants to 15 to 20-year leases, and considering the vehicle owns 109 properties; its income risk remains low. Lastly, the REIT runs on a triple net agreement, meaning that it passes costs through to its tenants. In most industries, I'd say that costs are an issue to cope with but considering the hypergrowth/embryonic stage of the cannabis industry and the high quality of Innovative Industrial Properties' tenants, I can't foresee it running into pass-through obstacles soon. Innovative Industrial Properties Valuation and Dividends Let's start off by running through a few isolated valuation metrics. Price/Funds From Operations 14.03x Price/Adjusted Funds From Operations 13.06x Debt to Capital 15.66% Source: Seeking Alpha The REIT's debt to capital-ratio shouldn't come as a surprise. Many Cannabis investors will run at lower debt ratios as there's still a reluctance from big borrowers to lend to the industry due to its legal risks and embryonic business cycle state. However, a 15.66% debt to capital isn't bad and shows that investors are reaping the benefits of enhanced equity valuation while maintaining robust rental growth. Furthermore, the P/AFFO and P/FFO are borderline. The P/AFFO provides a better economic representation as it considers maintenance and expansionary costs. As such, I'll focus on the P/AFFO if I were you. Innovative Industrial Properties' P/AFFO is undervalued on a normalized basis due to a price correction of more than 60% (year-to-date). In addition, rental fees have kept rising as the firm reported a 50% year-over-year revenue rise in its first quarter while only increasing its asset count by six properties. Therefore, I'd have to say that we could witness secular growth here, in which this REIT could separate itself from the broader asset class to sustain its rental fee rise while other sectors' rental fees wane given the global economic downturn. Innovative Industrial Properties Innovative Industrial Properties' dividends could remain robust. The drawdown in the REITs' listed price has provided many to invest at a low price level, which equates to a higher dividend yield, given the REIT's financial performance holds strong. The fund is required to pay 90% of its annual taxable income in dividends to shareholders, providing certainty to its shareholders that they will receive an income stream for as long as the REIT collects rental fees. Innovative Industrial Properties The REIT's payout ratio adjusted to funds from operations provides a more true representation of dividend distribution, and key metrics indicate its stretching distribution by 17.51%, considering its historical average. However, with rapid rental income growth, we don't see this as a long-term issue.

Shareholder Returns

IIPRUS REITsUS Market
7D5.5%0.5%1.4%
1Y-55.6%-4.0%-8.4%

Return vs Industry: IIPR underperformed the US REITs industry which returned -2.9% over the past year.

Return vs Market: IIPR underperformed the US Market which returned -9% over the past year.

Price Volatility

Is IIPR's price volatile compared to industry and market?
IIPR volatility
IIPR Average Weekly Movement7.3%
REITs Industry Average Movement4.1%
Market Average Movement7.6%
10% most volatile stocks in US Market17.1%
10% least volatile stocks in US Market3.1%

Stable Share Price: IIPR is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 7% a week.

Volatility Over Time: IIPR's weekly volatility (7%) has been stable over the past year.

About the Company

FoundedEmployeesCEOWebsite
201622Paul Smithershttps://www.innovativeindustrialproperties.com

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 medical-use 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.

Innovative Industrial Properties, Inc. Fundamentals Summary

How do Innovative Industrial Properties's earnings and revenue compare to its market cap?
IIPR fundamental statistics
Market CapUS$2.84b
Earnings (TTM)US$131.93m
Revenue (TTM)US$247.81m

21.6x

P/E Ratio

11.5x

P/S Ratio

Earnings & Revenue

Key profitability statistics from the latest earnings report
IIPR income statement (TTM)
RevenueUS$247.81m
Cost of RevenueUS$7.60m
Gross ProfitUS$240.21m
Other ExpensesUS$108.28m
EarningsUS$131.93m

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)4.72
Gross Margin96.93%
Net Profit Margin53.24%
Debt/Equity Ratio15.2%

How did IIPR perform over the long term?

See historical performance and comparison

Dividends

6.9%

Current Dividend Yield

84%

Payout Ratio