Investment IdeasStock NewsStocksUSCannabis Real Estate Company Makes Gains Despite Slumping Market

Innovative Industrial Properties is showing its sale-leaseback business model is a potent one
Avatar Nick LabaNovember 8, 20194 min

Growing weed isn’t the only way to make money in the cannabis industry.

If a recent surge in attention to Innovative Industrial Properties (NYSE: IIPR) is any indication, real estate investment trusts (REITs) might be a welcome alternative for investors wary of the volatile cultivation sector.

After posting strong quarterly results yesterday, the company’s share price has surged 17.5 per cent over the past two days from USD$72.52 to USD$85.22 a share.

While many cannabis companies’ valuations have been cut in half this year, IIP has demonstrated its model of buying property from cannabis companies then leasing it back to them can stay profitable in the midst of an otherwise poorly performing market. The companies selling their property receive much needed cash up front, while IIP benefits from collecting rent in the long run.

Notably, the company has generated rental revenues of USD$11.2 million in the quarter, a 201 per cent increase over the same quarter last year. It also paid a dividend of USD$0.78 to shareholders on Oct. 15, a 30 per cent increase over their second quarter 2019 dividend.

Innovative Industrial Properties cannabis real estate stock
IIP is one of the few cannabis companies to post strong numbers in the third quarter 2019

At the beginning of 2019, the company had acquired 30 properties in nine states. As of Nov. 6, IIP bought an additional 11 properties for a grand total of 41. It now owns 2.8 million square feet of real estate Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, Ohio and Pennsylvania.

This year IIP has spent about USD$360 million on new properties.

In the company’s press release, it gave the following breakdown of its financial results:

IIP generated rental revenues of approximately $11.2 million and $26.1 million for the three and nine months ended September 30, 2019, respectively, and rental revenues of approximately $3.7 million and $9.6 million for the three and nine months ended September 30, 2018, respectively.

The increase for both periods was driven primarily by the acquisition and leasing of new properties, additional tenant improvement allowances provided to tenants at certain properties that resulted in base rent adjustments, and contractual rental escalations at certain properties.

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