Innovative Industrial Properties (IIPR) is a single-use “specialty REIT” that specializes exclusively in owning properties that cultivate and produce marijuana.
With the cannabis industry being in the middle of a legal transition, there are constraints on the overall access to capital businesses in the space have. Innovative Industrial conducted its initial public offering during a “loophole” time period.
There isn’t any other cannabis-related REIT authorized for listing on the NYSE or the NASDAQ. As a result of this distinctive advantage of having limitless access to capital, Innovative Industrial Properties has managed to remarkably expand its property portfolio and revenues.
The company’s latest results were once again exceptional, and as of its latest filings, it has expanded its portfolio to 105 properties in 19 states. Powered by the cannabis boom gradually evolving and IIPR’s exclusive access to capital, the company remains the fastest-growing publicly traded REIT globally. I remain bullish on the stock.
Latest Results
Innovative Industrial Properties’ fierce growth was once again exemplified in the company’s latest results.
In its Q4 2021 results, the trust posted revenues and normalized AFFO/share of $58.9 million and $1.85, an increase of 59%, and 42.3%, respectively. These rates even accelerated from Q3’s 56.9% and 33.6%, respectively.
Growth was supported by IIPR completing another 31 acquisitions since the beginning of October, and contractual rental escalations at several of its properties.
AFFO/share increased at a milder rate than revenues due to the newly issued shares that were offered to partly finance these acquisitions. Nevertheless, the AFFO/share growth was also quite remarkable.
To demonstrate how high the demand for IIPR’s specialized cannabis properties is, as well as the company’s capability in securing potent deals, IIPR’s properties are currently 100% leased, featuring a weighted-average remaining lease term of approximately 16.6 years.
Additionally, with its tenants experiencing growing marijuana demand amid increasing consumption, the trust collected 100% of its contractual rent due during the quarter. These are some metrics that no other REIT can claim these days, which speaks volumes to the trust’s qualities and competitive advantages.
Wall Street’s Take
Turning to Wall Street, Innovative Industrial Properties has a Strong Buy consensus rating, based on four Buys and one Hold assigned in the past three months.
At $262.80, the average Innovative Industrial Properties stock projections imply 30.9% upside potential.
Valuation & Conclusion
The consensus amongst analysts points towards an FFO/share of around $8.57 for FY 2022. Based on this estimate, Innovative Industrial is trading at a P/FFO of around 23.4 at its current price levels. Following the correction that most stocks experienced year-to-date, the stock’s valuation multiple has been significantly compressed.
In my view, the current valuation significantly undervalues the company’s stellar growth prospects, which IIPR has consistently proven able to achieve. Don’t forget that in its latest results, growth even accelerated sequentially.Coupled with IIPR’s 3% dividend yield and the company’s most recent robust dividend per share hike to a quarterly rate of $1.75 (representing a 17% increase over its Q4 2021 DPS), the stock’s investment case features a substantial margin of safety as well.
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