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Key Factors to Impact Innovative Industrial (IIPR) Q2 Earnings

Zacks Equity Research

Innovative Industrial Properties, Inc. IIPR is scheduled to report second-quarter 2019 results on Aug 7, after the market closes.

In the last reported quarter, this real estate investment trust (REIT), which is focused on cannabis-centered real estate portfolio, reported adjusted funds from operations (FFO) of 54 cents, denoting an increase of a whopping 275% from the prior year quarter. Results indicated robust increase in rental revenues, driven mainly by the acquisitions and leasing of new properties.

Let’s see how things are shaping up.

Factors at Play

Innovative Industrial Properties, focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated state-licensed cannabis facilities, is likely keep gaining from its strategic acquisitions.

The company 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. With such expansion efforts, the company remains well poised to boost its top line in the second quarter.

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. Notably, 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.

During the second quarter, 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.

In addition, the company expanded its real estate partnership with Green Peak Innovations at Michigan Property as well as acquired Pennsylvania properties, and entered into long-term leases with Green Leaf Medical and Maitri Genetics.

In fact, the company’s strategic expansion efforts have resulted in the company owning 23 properties as of Jul 9, 2019, located in Arizona, California, Colorado, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Ohio and Pennsylvania. The properties aggregate around 1.8 million rentable square feet that were fully leased, with a weighted-average remaining lease term of about 15.6 years.

With these concerted measures, the company remains well poised to grow during the April-June quarter, backed by contributions from acquisitions and leasing of new properties together with contractual rental escalations at some properties.

Innovative Industrial Properties currently carries a Zacks Rank #2 (Buy).

Stocks That Warrant a Look

Here are a few stocks in the broader real estate sector that you may want to consider, as our model shows that these have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

MGM Growth Properties LLC MGP, scheduled to release earnings on Aug 6, has an Earnings ESP of +0.57% and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Physicians Realty Trust DOC, set to report quarterly figures on Aug 7, has an Earnings ESP of +3.41% and carries a Zacks Rank of 2, currently.

Jones Lang LaSalle Incorporated JLL, slated to announce second-quarter results on Aug 6, has an Earnings ESP of +3.72% and holds a Zacks Rank of 2, at present.

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