Innovative Industrial Properties (IIPR) is a single-use “specialty REIT” that engages solely on owning properties utilized to cultivate and produce marijuana.
Due to the industry being in the midst of a legal metamorphosis, there are limitations on the availability of capital that businesses in the cannabis industry have. Innovative Industrial completed its initial public offering during a “loophole” time period.
There isn’t a single other cannabis-related REIT approved for listing on the NYSE or the NASDAQ. Due to this unprecedented advantage of having boundless access to capital, the company has managed to massively expand its property portfolio and overall financials.
As of its latest filings, the company owned 76 properties in 19 states. Driven by the cannabis boom unfolding lately and the company’s premier access to capital, Innovate Industrial Properties is the fastest-growing publicly traded REIT in the world. I am bullish on the stock.
Growth and Qualities
Innovative Industrial Properties’ explosive growth was once again demonstrated in the company’s latest results.
In its Q3-2021 results, the trust posted revenues and normalized AFFO/share of $53.9 million and $1.74, suggesting an increase of 56.9%, and 33.6% year-over-year, respectively. The growth was driven by the company acquiring five new properties since early July and from contractually secured rental escalations at certain properties.
AFFO/share expanded at a softer rate than revenues due to the newly issued shares that were offered to partially finance these purchases. Still, the AFFO/share growth was very impressive.
To illustrate how high the demand for specialized cannabis properties is, as well as the company’s leverage in securing robust deals, IIPR’s properties are currently 100% leased, featuring a weighted-average remaining lease term of approximately 16.7 years.
Further, with its tenants experiencing very strong marijuana demand amid growing consumption, the trust collected 100% of its contractual rent due during the quarter.
These are some metrics literally no other REIT can claim. Not even the top-quality, most mature REITs globally can boast such a lengthy lease profile, which speaks volumes to the trust’s qualities.
Dividend and Valuation
Innovative Industrial Properties has unfailingly hiked its quarterly dividend sequentially over the past few quarters, plentifully rewarding its shareholders. The latest hike to a DPS of $1.50 represented a 7% growth quarter-over-quarter, or a 28.2% growth year-over-year.
Based on the company’s performance during Q1-Q3, I project that the trust will end FY 2021 with an AFFO/share of around $6.30. Hence, the stock’s 3.02% yield should be considered rather safe at the current annualized DPS of $6.00 — especially taking into account the company’s consistent growth on a sequential basis.
Based on this projection, Innovative Industrial is trading at a P/FFO of around 30.3. While this multiple implies a premium relative to other industrial REITs, I believe it is well worth it, considering the company’s exceptional lease profile and ongoing growth tailwinds.
Wall Street’s Take
Turning to Wall Street, Innovative Industrial Properties has a Moderate Buy consensus rating, based on two Buys assigned in the past three months.
At $287.50, the average Innovative Industrial Properties stock projections imply 50.3% upside potential.
Conclusion
In my view, Innovative Industrial Properties is a fantastic vehicle for investors to get exposure in the growing cannabis industry, with limited risk.
Instead of speculating which cannabis-producing company will be a long-term prizewinner, investors can benefit from what every single of these producers needs, which is a specialized property.
While the stock is not cheaply valued, I believe that its underlying growth easily justifies its current valuation. Hence, I am bullish on the stock.
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