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In a bid to grow its portfolio and capitalize on the healthy market fundamentals, Innovative Industrial Properties IIPR recently announced the completion of its acquisition of a Texas property for $3.4 million. Located in San Marcos, the property expands the company’s footprint to 68 properties with more than 5.9 million square feet across several states.
This real estate investment trust (“REIT”), which is focused on cannabis-centered real estate portfolio, also entered into a long-term lease with Surterra San Marcos LLC, a subsidiary of Surterra Texas, which itself is a subsidiary of Parallel.
Notably, Surterra San Marcos, on completing the construction of three buildings — one retail and two industrial — comprising a total of roughly 63,000 square feet on the property, plans to operate the property as a licensed cannabis cultivation, processing and retail facility. Considering the full reimbursement for the construction, Innovative Industrial Properties’ total investment in it will be $27.4 million (excluding transaction costs).
The company’s expansion of partnership with Parallel seems a strategic fit. This is because Parallel is one of the largest privately-held multi-state cannabis operators in the United States. Apart from the Texas property, Innovative Industrial Properties owns and leases two regulated cannabis cultivation and processing facilities in Florida to subsidiaries of Parallel. Considering full reimbursement for tenant improvements under the leases, the company’s total investment in properties leased to Parallel is estimated to be around $127.3 million.
Notably, the legalization of marijuana for medical use across several states in the United States, as well as the permission of adult consumption in some, has created opportunities for the cannabis industry. Therefore, with more states in the nation giving cannabis the green light, Innovative Industrial Properties has incentives to partner with experienced medical-use cannabis operators, and serve as a vital source of capital by acquiring and leasing back their real-estate assets. Its strategy is to acquire the existing, redeveloped and under-development industrial buildings, including attached enclosed greenhouse facilities.
Notably, in 2015, Texas passed the Texas Compassionate Use Program, which is currently a limited program providing medical cannabis to qualifying patients. However, the program presently offers cannabis for a limited number of qualifying medical conditions.
More than a dozen sections of cannabis-related legislation have been pre-filed by Texas lawmakers for consideration in the 2021 legislative session. These include expansion of qualifying medical conditions, removing the THC cap, and decriminalizing cannabis possession, among others.
This is likely to open up scope for the cannabis industry and consequently, the acquisition of the San Marcos property and subsequent tie-ups provide growth opportunities for Innovative Industrial.
However, the company’s fourth-quarter 2020 adjusted funds from operations (“FFO”) per share missed expectations with lower-than-expected growth in revenues. The company reported adjusted FFO per share of $1.29, which trailed the Zacks Consensus Estimate of $1.51.
Currently, Innovative Industrial Properties carries a Zacks Rank #5 (Strong Sell). Over the past three months, shares of the company have outperformed the industry. The stock has gained 7.2% compared with the industry’s increase of 4.6%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
Alpine Income Property Trust, Inc.’s PINE FFO per share estimates for the current year have moved up 5.4% to $1.55 in the past month. The company sports a Zacks Rank of 1 (Strong Buy), currently.
Extra Space Storage Inc.’s EXR Zacks Consensus Estimate for 2021 FFO per share has moved up 3.2% to $5.84 in the past week. The company currently carries a Zacks Rank of 2 (Buy).
Global Net Lease, Inc. GNL has a Zacks Rank of 2 at present. The Zacks Consensus Estimate for 2021 FFO per share has been revised 4% at $2.10 in a month’s time.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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