Innovative Industrial Properties (IIPR) has been making big moves in the cannabis industry, quickly establishing itself as the go-to real estate investment trust (REIT) for cannabis operators.
With its focused strategy and impressive growth, IIPR offers investors a unique way to gain exposure to the burgeoning cannabis sector while collecting a juicy dividend yield.
Snapping Up Cannabis Real Estate
IIPR specializes in the acquisition, ownership, and management of specialized industrial and retail properties leased to licensed medical cannabis operators.
As of December 2023, the company owned 110 properties located in 19 states, totaling approximately 8.86 million rentable square feet.
IIPR’s properties are 100% leased to state-licensed medical cannabis operators, with a weighted average lease term of over 16 years.
The company is highly focused on expanding its portfolio, targeting both established licensed operators and up-and-coming firms that are expanding operations.
Racking Up Impressive Growth Numbers
IIPR has been executing its focused growth strategy well, delivering exceptional financial results quarter after quarter.
In Q3 2023, the company generated total revenues of $76.46 million, representing an increase of 35% year-over-year. Net income came in at $154 million, up 31% compared to the prior year’s quarter.
Importantly, IIPR has grown its portfolio at a rapid clip. Since 2017, the company has expanded from 11 properties to 108 properties, reflecting a compound annual growth rate of 117%. At the same time, IIPR has maintained a stellar occupancy rate of 100%.
Generating Rock-Solid Cash Flows
IIPR’s long-term triple-net leases contain contractual rent escalations, generating predictable and steadily growing cash flows.
As of Q3 2023, straight-line rents were $205.3 million, reflecting an increase of 31% year-over-year. IIPR also maintains a strong balance sheet, providing it with ample liquidity to continue expanding.
Significantly, IIPR has exceeded analysts’ bottom-line estimates in each of the past four quarters. While the stock is only up 2.6% year-to-date, it appears reasonably valued at current levels. Shares trade at around 11 times forward adjusted funds from operations (FFO), representing a discount to the median for the broader REIT sector.
Delivering a Growing 7%+ Dividend
One of the major draws for IIPR is its impressive – and growing – dividend. The company has increased its dividend for five consecutive years since going public in 2016.
IIPR currently pays a quarterly dividend of $1.80 per share, translating to a yield of over 7% based on the current share price.
With a low payout ratio of just 76% of adjusted FFO, IIPR has plenty of room to keep expanding the dividend. The company aims to return 50-60% of AFFO to shareholders in the form of dividends, while retaining the rest to fund expansion opportunities.
Dividends & Yields
This stock pays an annual dividend of $7.28, which amounts to a dividend yield of 7.21%.
| Dividend Per Share | $7.28 |
| Dividend Yield | 7.21% |
| Earnings Yield | 5.81% |
| FCF Yield | 1.65% |
| Dividend Growth (YoY) | 1.69% |
| Payout Ratio | 125.95% |
| Buyback Yield | -0.38% |
| Shareholder Yield | 6.84% |
Dividend History
| Ex-Dividend Date | Cash Amount | Record Date | Pay Date |
|---|---|---|---|
| Dec 28, 2023 | $1.820 | Dec 29, 2023 | Jan 12, 2024 |
| Sep 28, 2023 | $1.800 | Sep 29, 2023 | Oct 13, 2023 |
| Jun 29, 2023 | $1.800 | Jun 30, 2023 | Jul 14, 2023 |
| Mar 30, 2023 | $1.800 | Mar 31, 2023 | Apr 14, 2023 |
| Dec 29, 2022 | $1.800 | Dec 30, 2022 | Jan 13, 2023 |
| Sep 29, 2022 | $1.800 | Sep 30, 2022 | Oct 14, 2022 |
| Jun 29, 2022 | $1.750 | Jun 30, 2022 | Jul 15, 2022 |
| Mar 30, 2022 | $1.750 | Mar 31, 2022 | Apr 14, 2022 |
| Dec 30, 2021 | $1.500 | Dec 31, 2021 | Jan 14, 2022 |
| Sep 29, 2021 | $1.500 | Sep 30, 2021 | Oct 15, 2021 |
| Jun 29, 2021 | $1.400 | Jun 30, 2021 | Jul 15, 2021 |
| Mar 30, 2021 | $1.320 | Mar 31, 2021 | Apr 15, 2021 |
| Dec 30, 2020 | $1.240 | Dec 31, 2020 | Jan 15, 2021 |
| Sep 29, 2020 | $1.170 | Sep 30, 2020 | Oct 15, 2020 |
| Jun 29, 2020 | $1.060 | Jun 30, 2020 | Jul 15, 2020 |
| Mar 30, 2020 | $1.000 | Mar 31, 2020 | Apr 15, 2020 |
| Dec 30, 2019 | $1.000 | Dec 31, 2019 | Jan 15, 2020 |
| Sep 27, 2019 | $0.780 | Sep 30, 2019 | Oct 15, 2019 |
| Jun 27, 2019 | $0.600 | Jun 28, 2019 | Jul 15, 2019 |
| Mar 28, 2019 | $0.450 | Mar 29, 2019 | Apr 15, 2019 |
| Dec 28, 2018 | $0.350 | Dec 31, 2018 | Jan 15, 2019 |
| Sep 27, 2018 | $0.350 | Sep 28, 2018 | Oct 15, 2018 |
| Jun 28, 2018 | $0.250 | Jun 29, 2018 | Jul 16, 2018 |
| Mar 28, 2018 | $0.250 | Mar 29, 2018 | Apr 16, 2018 |
| Dec 28, 2017 | $0.250 | Dec 29, 2017 | Jan 16, 2018 |
| Sep 28, 2017 | $0.150 | Sep 29, 2017 | Oct 13, 2017 |
| Jun 28, 2017 | $0.150 | Jun 30, 2017 | Jul 14, 2017 |
Analysts See Upside Potential
Looking ahead, analysts have a moderately bullish outlook for IIPR stock. Among four analysts providing recommendations, one has IIPR as a “Strong Buy” while the other three say it’s a “Hold.”
The average analyst price target of $107.80 suggests upside potential of approximately 7% from current levels.
While not excessively undervalued, IIPR appears attractively priced for long-term investors seeking exposure to the high-growth cannabis industry. The REIT offers an uncommon mix of growth, income, and stability that is hard to match in the cannabis space.
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Conclusion: This Specialized REIT Offers Growth and Generous Yield
For investors interested in the cannabis sector, IIPR presents an appealing opportunity. The company is poised to continue benefiting from expanding cannabis legalization in North America.
With its focused strategy, strong balance sheet, and experienced management team, IIPR is well-positioned to keep delivering.
The REIT offers an attractive blend of growth and income. By providing essential real estate to cannabis operators, IIPR can maintain its rapid expansion pace and double-digit AFFO growth.
And shareholders are rewarded with an expanding dividend exceeding 7%. For all these reasons, investors looking for a unique cannabis play may want to take a closer look at IIPR.
Frequently Ask Questions
What exactly does IIPR do?
IIPR is a real estate investment trust (REIT) that focuses on the acquisition, ownership, and management of specialized properties leased to licensed cannabis operators for medical-use cannabis facilities.
How has IIPR been performing financially?
IIPR has been delivering exceptional growth and financial performance. In Q3 2023, total revenues grew 35% year-over-year to $76.4 million, while net income increased 26% to $39.2 million. IIPR has also rapidly expanded its portfolio from 11 properties in 2017 to 110 properties currently.
Why is IIPR’s dividend yield so high?
IIPR offers a very high dividend yield of over 7% because of its strong financial performance and rapidly growing dividend payout. The company has increased its dividend for 5 consecutive years since its IPO and has plenty of room to keep expanding the payout.
Is IIPR stock undervalued right now?
While not greatly undervalued, IIPR does appear attractively valued at current levels. Shares trade at around 11 times forward AFFO, representing a discount to broader REIT peers. Analysts see around 7% upside potential from current prices.
What are the biggest risks for investing in IIPR?
Key risks include regulatory changes in the cannabis industry, tenant credit risks if operators run into financial trouble, and potential oversupply in certain state cannabis markets. However, IIPR mitigates these risks through strict tenant vetting and long-term triple-net leases.