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Innovative Industrial Boosts Michigan Foothold on Asset Buyout

Zacks Equity Research

Innovative Industrial Properties IIPR has completed the acquisition of a Michigan property and entered into a long-term, triple-net lease agreement with subsidiary of Ascend Wellness Holdings, LLC (AWH).

Specifically, Innovative Industrial Properties shelled out $4.8 million (excluding transaction costs) for this property in Lansing, which comprises around 145,000 square feet of industrial space. The subsidiary of Ascend Wellness Holdings will use the property as licensed medical-use cannabis cultivation and processing facility, following some redevelopment efforts.  

Innovative Industrial Properties has also committed to provide up to approximately $15 million as reimbursement for the tenant improvements, resulting in its total investment in the property reaching around $19.8 million.

The teaming up with AWH for the Michigan property represents the company’s second real estate deal with AWH. Late last year, a 75,000-square-foot industrial facility in Illinois was acquired by Innovative Industrial Properties. It entered into a long-term, triple-net lease agreement with AWH for using the property as a medical cannabis cultivation and processing facility.

Considering full reimbursement for tenant improvements, Innovative Industrial Properties’ total investment in the property is estimated to be $25 million. With a solid balance sheet, AWH is well poised to grow, and is ramping up its operations in Massachusetts, Illinois, Michigan and Ohio.

Moreover, Innovative Industrial Properties is growing its presence in Michigan and last month, the company announced the acquisition of a property in Harrison, MI, which comprises around 45,000 square feet of industrial space. The company entered into a long-term, triple-net lease agreement with an affiliate of Emerald Growth Partners that will use the property as licensed medical-use cannabis cultivation and processing facility, and committed to provide up to approximately $3.1 million as reimbursement for the tenant improvements, leading to its total investment in the property reaching around $10 million.

The expansion in Michigan is a strategic fit for Innovative Industrial Properties which is focused on cannabis-centered real estate portfolio. This is because Michigan is one of the largest medical-use cannabis markets in the United States, including around 270,000 medical-use cannabis cardholders as of the end of 2017, per ArcView Market Research.

Additionally, last year, the state legalized adult-use cannabis and according to ArcView projections, by 2022, Michigan is set to emerge as one of the top 10 regulated cannabis markets, with total regulated cannabis sales of $1.4 billion.

Innovative Industrial Properties currently carries a Zacks Rank #2 (Buy). In the year-to-date period, shares of the company have outperformed the industry. While the stock has surged 191.5%, the industry has gained 21% during this period.



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