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Innovative Industrial (IIPR) Buys Pennsylvania Property for $41.8M

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Innovative Industrial Properties (IIPR - Free Report) recently announced completing the acquisition of a Pennsylvania property for $41.8 million. It acquired the property in a bid to grow its portfolio and capitalize on the healthy market fundamentals.

Located in Pittsburgh, this property expands the company’s footprint to 70 properties, with 6.4 million square feet across several states. On completion of redevelopment, the property is expected to comprise around 239,000 square feet of industrial space.

This real estate investment trust (REIT), focused on cannabis-centered real estate portfolio, has also entered into a long-term, triple-net lease agreement for the entire property with a subsidiary of Parallel, a reputed privately-held multi-state cannabis operator in the United States. It is for use as a regulated cannabis growing and processing facility. Considering the full reimbursement for the tenant improvements, Innovative Industrial Properties’ total investment would be $67.8 million for the same.

The company’s partnership with Parallel seems a strategic fit. This is because Parallel is one of the largest privately-held multi-state operators in the cannabis industry with operations in thriving markets, including Florida, Massachusetts, Pennsylvania and Texas.

Innovative Industrial Properties already owns and leases to subsidiaries of Parallel two regulated cannabis cultivation and processing facilities in Florida, as well as one property in Texas that is planned to be used for regulated cannabis cultivation, processing and retail activities upon completion of development. In fact, the company’s total investment in properties leased to Parallel is estimated to be $195.1 million, spanning roughly 895,000 square feet of space. This assumes full reimbursement for tenant improvements under the leases.

Markedly, 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.

Over the past six months, shares of the company have outperformed the industry. The stock has gained 16.9% compared with the industry’s rally of 10.2%.


Remarkably, Pennsylvania is providing an avenue of significant opportunities for the cannabis industry. The Pennsylvania medical cannabis market witnessed rapid growth after recording first sales in 2018. The company noted that according to BDSA, 2020 medical-use cannabis sales were estimated to be around $545 million, and overall regulated cannabis sales are projected to grow to more than $1.3 billion by 2026. This makes the company’s investment in the Pennsylvania market a strategic one. Considering this property, the company owns eight properties in Pennsylvania, comprising 1.1 million square feet, and denoting a total investment of approximately $292.3 million.

However, the trend in estimate revision of 2021 funds from operations (FFO) per share does not indicate an upbeat outlook, the estimate being revised downward over the past month. Currently, Innovative Industrial Properties carries a Zacks Rank #5 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Apple Hospitality REIT, Inc.’s (APLE - Free Report) FFO per share estimate for the current year moved up around 7% to 62 cents in the past week. The company currently carries a Zacks Rank of 2 (Buy).

OUTFRONT Media Inc.’s (OUT - Free Report) Zacks Consensus Estimate for 2021 FFO per share has moved marginally north to 89 cents over the past month. The company currently carries a Zacks Rank of 2.

Braemar Hotels & Resorts Inc. (BHR - Free Report) carries a Zacks Rank of 2 at present. The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised around 38% upward in a week, to 44 cents.

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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