Innovative Industrial Properties, Inc.

IIPR Details

Innovative Industrial Properties, Inc. (NYSE: IIPR) is a Real Estate Investment Trust (REIT) focused on purchasing, owning, and administering specialized properties leased to state-licensed operators for their regulated authorized cannabis operations. It buys properties through sale-leaseback deals and third-party acquisitions. IIPR held 72 properties leased to state-licensed cannabis operators in 18 states, totaling approximately 6.6 million rentable sq. ft with a weighted average remaining lease term of around 16.7 years as of June 30, 2021.

Exchange of Senior Notes & Declaration of Dividend: IIPR stated on September 14, 2021, that its operating partnership will begin an exchange offer for USD 300 million aggregate principal amount of outstanding unregistered 5.50% senior notes due 2026, which were initially issued on May 25, 2021. The noteholders can exchange them for new 5.50% senior notes due 2026 with an identical principal amount and similar terms relating to the initial notes, except for transfer restrictions and registration rights. Concurrently, the company also announced a quarterly dividend of USD 1.50 per share, payable on October 15, 2021, to shareholders of record on September 30, 2021.

Expansion Endeavors: On August 16, 2021, IIPR announced that it had finalized the purchase of a property in Hancock, Maryland, for USD 16.6 million and signed a long-term lease with a subsidiary of Harvest Health & Recreation Inc. IIPR's total investment in the property is estimated to be around USD 29.5 million, assuming full reimbursement for tenant renovations.

H1FY21 Results: The company reported a massive surge of 1.02x in total revenues to USD 91.75 million during H1FY21 (ended June 30, 2021) compared to USD 45.48 million during H1FY20, owing to an increase in the number of properties. As a result, IIPR also witnessed an increase in net income (attributable to its equity holders) to USD 54.59 million during H1FY21 from USD 24.51 million reported in H1FY20. In addition, IIPR improved its net cash from operating activities to USD 89.39 million during H1FY21 from USD 43.11 million during H1FY20.

Key Risks: The company's top two customers, i.e. PharmaCann Inc. and Ascend Wellness Holdings, Inc., accounted for 22% and 33% of its rental revenues during H1FY21 and H1FY20, respectively. Such over-reliance on a few customers for revenue may harm the company's financial status in the long term.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

IIPR Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: IIPR's stock price surged 86.42% in the past twelve months and is currently leaning towards the higher-band of the 52-week range of USD 112.25 to USD 253.61. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 50.37. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 203.75. Considering the significant uptick in the stock price, we believe the strong business fundamentals are adequately reflected at the current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 235.23, down 0.11% as of September 17, 2021, 11:04 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and industry information have been taken from REFINITIV. 

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