Despite the challenging environment in the cannabis sector at this time, Innovative Industrial Properties (IIPR) has been bucking the trend when it comes to stock performance. And there are reasons to believe that this trend will continue.
Recently the company announced their quarterly earnings this month and they beat analyst expectations by quite a bit. The company reported earnings last quarter with revenues coming in at $11.4 million and EPS at $0.55. Wall Street was looking for EPS of $0.47 on revenues of 10.7 million. IIPR has managed to drive revenue growth from their spree of acquisitions. The company started the year off with 11 properties and currently owns 41 properties. They have built a tremendous portfolio with properties in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, Ohio, and Pennsylvania, which totals approximately 2.8 million square feet of rentable space. This number includes approximately 903,000 rentable square feet under development/redevelopment, which still remains 100% leased with a weighted-average remaining lease term of approximately 15.5 years.
There has been a divergence in share price performance in 2019 and this is a prime example of how Innovative Industrial Properties business model has succeeded compared to some of the largest companies in the cannabis sector, at least for now.
We can see that in mid-2018 Innovative Industrial Properties was not the top-performing stock compared to the other large-cap stocks within the cannabis sector. It wasn’t until early 2019 when the divergence started. As investor patience for cannabis companies to see profits grew thin, Innovative Industrial Properties continued to expand and deliver results which is why the stock has outperformed the closest competitor in terms of performance by more than 3x.
As the industry grows and matures, there will be a constant need for greenhouses. The United States will become one of the largest markets in the world for medical and recreational cannabis, if it legalized at a federal level (although there are already a large number of states where cannabis is already legal both medically and recreationally). Innovative Industrial Properties targets the medical cannabis niche which in our opinion carries lower risk as opposed to companies targeting the recreational cannabis niche as earnings tend to be more stable resulting in lower risk tenants in their properties.
Innovative Industrial Properties remains an attractive company to consider for many reasons. First, the company offers growth for any investors looking to gain exposure to the cannabis sector which still carries tons of growth potential but wants to take a safer approach as opposed to investing in a pure-play cannabis company. Second, Innovative Industrial Properties pays a very attractive dividend yield which appeals to any growth-oriented income investor looking to diversify their income streams. Finally, Innovative Industrial Properties is at the end of the day a REIT which means they will continue to invest in real estate and will most likely not stray away from this long term, a stable business plan that got them to where they are in the first place. Innovative Industrial Properties remains a top stock on our watchlist moving into 2020 and we feel that the best could be yet to come.
IIPR shares were trading at $80.01 per share on Thursday afternoon, up $0.01 (+0.01%). Year-to-date, IIPR has gained 79.51%, versus a 26.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...