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Innovative Industrial Grows Pennsylvania Base on Asset Buyout

Zacks Equity Research

In a move to grow its portfolio and capitalize on the healthy market fundamentals, Innovative Industrial Properties IIPR recently announced closing of an acquisition of a property in Scott Township, PA.

This real estate investment trust (REIT), which is focused on cannabis-centered real estate portfolio, has also entered into a long-term lease and development agreement with subsidiary of PharmaCann LLC for a 23,000-square-foot industrial facility and a roughly 31,000-square-foot greenhouse facility on the property.

While the contract purchase price for the property is $942,000, Innovative Industrial Properties has committed to provide reimbursement of up to approximately $29.1 million as PharmaCann is likely to construct the project at the facility.

Considering full reimbursement for the construction, including the additional potential funding, Innovative Industrial Properties’ total investment in the property is estimated to be $30 million (excluding transaction costs).

In fact, the teaming up through acquisition and lease marks the company’s fourth transaction with PharmaCann. Earlier partnerships included Innovative Industrial Properties’ acquisitions and leases for PharmaCann’s medical-use cannabis cultivation and processing facilities in New York, Massachusetts and Ohio.

Notably, Innovative Industrial Properties aims to expand its presence in states with robust medical cannabis-approved programs. Its strategy is to acquire existing, redeveloped and under-development industrial buildings, including attached enclosed greenhouse facilities.

In 2018, medical-use cannabis dispensaries in Pennsylvania made their first sales. Moreover, in July, the Pennsylvania Department of Health (DOH) disclosed that more than 110,000 active certified patients and above 1,600 physicians were there in the medical cannabis program.

Along with expanding patient access to the program over time, the DOH has also rolled out a clinical research program for medical cannabis. This offers for tie ups with clinical registrants and universities for carrying out research on cannabis’ efficiency in the treatment of a number of medical conditions specified in the state’s list.

Hence, this tie up with PharmaCann, which is a multi-state cannabis operator with licenses in Illinois, Maryland, Massachusetts, New York, Pennsylvania, Ohio and Virginia, is a prudent one for Innovative Industrial Properties.

According to ArcView Market Research report, U.S. regulated cannabis sales rose to $8.6 billion in 2017, including $5.9 billion of medical-use cannabis sales. Further, sales are expected to reach $22.2 billion by 2022. The legalization of marijuana’s medical use in several states as well as allowing adult consumption in some states have opened up scope for the cannabis industry. Therefore, with more states in the United States giving cannabis the green light, Innovative Industrial Properties has incentive to acquire additional properties.

Innovative Industrial Properties currently carries a Zacks Rank #3 (Hold). In the past six months, shares of the company have outperformed the industry. While the stock has surged 65.3%, the industry has gained 7.8% during this period.

Stocks to Consider

Some better-ranked stocks from the real-estate space include Extra Space Storage EXR, PS Business Parks, Inc. PSB and Prologis, Inc. PLD. All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Extra Space Storage’s Zacks Consensus Estimate for 2019 funds from operations (FFO) per share moved marginally north to $4.84 in a month’s time.

PS Business Parks’ FFO per share estimates for the current year inched up 1.8% to $6.83 over the past month.

Prologis’ Zacks Consensus Estimate for the ongoing year’s FFO per share moved up 1.2% to $3.27 in the past month.

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