IIPR is an internally managed real estate investment trust (REIT) focused on the acquisition, ownership and management of specialized properties leased to experienced, state-licensed operators for their regulated cannabis facilities.
The company owns 105 properties comprising an aggregate of approximately 7.9 million rentable square feet (including approximately 2.5 million rentable square feet under development or redevelopment) in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Texas, Virginia and Washington.
The legalized cannabis market is exploding lately in the U.S. with 38 states and Washington, D.C. having legalized cannabis for medical-use, and 19 states have legalized cannabis for adult-use as of December 31, 2021. Research conducted by Cowen and Company revels that the legal Cannabis market is bound to grow 20-30% per year to the price of 50 billion by 2026. (https://www.forbes.com/sites/earlcarr/2021/12/31/cannabis-not-santa-is-coming-to-town/?sh=5f8404aa30c1)
IIPR was founded in December 2016, and is the first publicly traded company on the New York Stock Exchange to provide real estate capital to the regulated cannabis industry.
(Source: Innovative Industrial Properties Investor Relations)
http://investors.innovativeindustrialproperties.com
Some metrics I look for –
Safety:
Dividend Safety Score – 60 out of 99 – considered “safe”
Current Ratio (look for a number higher than 1, higher the better) – N/A
Debt to Equity (lower the better) – 0.29
Payout Ratio – 74.30%
Estimated FFO Growth Rate – 5 year – 26.70%
Dividend history:
Years of dividend increases: 5
Dividend growth rate – 3 year – 53.26%
Current yield: 3.13%
Current dividend: $6.00
Valuation:
DCF model: $430.05
P/FFO Mean Reversion: $212.13
Dividend Yield Theory: $237.15
Average of the three valuations – $293.11
Since DCF is an outlier, the average of the other two – $224.64
Analyst Consensus Estimate (1 Year) – $282.71
Current price: $191.42 (02/10/2022)
Potential discount: 17.35% (53% including DCF calculation)
Commentary:
IIPR is growing like a weed… (I will let myself out :-)). They are one of the largest and oldest providers of real estate for the growing medical marijuana industry. They have a market capitalization of a little more than $5 billion and the shares have gained 960% in the past 5 years. They do not grow the plants, they just provide the facilities and machinery to growers. They operate on a net lease basis, so the tenant is responsible for all taxes, maintenance, and renovations. This creates a “pick and shovel” approach to the growing medical marijuana business. The company benefits from the growth of the industry without having to do any of the planting, cultivation, packaging, marketing, or delivery.
Last year they switched from a quarterly dividend increase schedule to a semi-annual one. The current dividend is $1.50 per share per quarter and they are expected to increase the dividend again with the next announcement since it has been $1.50 for 2 quarterly payments.
The market for medical marijuana is growing with each new state that legalizes it and IIPR is set to take advantage of this industry trend. They have 73 facilities in 18 states and all properties are 100% leased with an average remaining lease term of 16.7 years, which provides stability and growth prospects for their funds from operations (FFO) and dividend growth.
The company is in a solid financial position but the stock is recently in a downtrend so now may be a good time to pick up some shares of this growing company.
Let me know what you think!
Disclosure: I own IIPR.