IIPR Stock: Undervalued 4.8%-Yielding Pot Stock Hikes Dividend 33%
May 6, 2022
Wall Street Says Innovative Industrial Properties Stock Can Double Again
For investors who missed out on the spring 2020 stock market rally—or those who want to take advantage of a pullback—now might be the perfect time. For cannabis investors looking for a stock that has taken an undeserved hit, one of the best is Innovative Industrial Properties Inc (NYSE:IIPR).
As you can see in the chart below, IIPR stock has been on a tear since bottoming during the February/March 2020 coronavirus-fueled sell-off.
Between that time and the end of 2021, shares of Innovative Industrial Properties Inc rallied by 600%. That momentum ended abruptly in early 2022 on growing concerns about rising interest rates, inflation, the ongoing COVID-19 pandemic, earnings season, and fears that Russia would invade Ukraine. The volatility was broad-based, with the entire stock market taking a hit.
Stocks rebounded in the second half of March, but they’ve again fallen victim to familiar headwinds: soaring inflation, a hawkish Federal Reserve, the war in Ukraine, Chinese economic-growth worries, and a looming recession. As of this writing, the S&P 500 is in correction territory, down by 12.7% year-to-date. The Dow Jones Industrial Average is flirting with a correction and the tech-heavy Nasdaq is in bear-market territory, down by 20.7% year-to-date.
As for Innovative Industrial Properties stock, it’s down by 15% year-over-year and an eyewatering 46% year-to-date.
To be fair, not all of those year-to-date losses can be blamed directly on Innovative Industrial Properties Inc. The entire cannabis stock market is bearish at the moment, with stalled federal U.S. legalization of marijuana being the biggest industry headwind. Then there’s the issue of a dubious short-seller report that targeted IIPR stock.
Despite all that, Wall Street analysts’ average 12-month price target for Innovative Industrial Properties stock is $251.50 and their high estimate is $300.00. This points to potential upside of 75% to 108%.
Chart courtesy of StockCharts.com
Innovative Industrial Properties Inc Faces Pressure From Short-Seller Report
You know you’re doing well when angry short sellers publish a report whose only goal is to see your share price retreat.
Innovative Industrial Properties stock hit a speed bump in mid-April after a biased short-seller report basically called the company a fraud. Why would they do that? In this case, IIPR stock was doing exceptionally well, significantly outpacing the broader market, so short sellers weren’t pleased.
The newsletter authors were anything but altruistic, noting, “We are short sellers. We are biased…We have a short interest in IIPR’s stock and therefore stand to realize significant gains in the event that the price of such instrument declines.” (Source: “Innovative Industrial Properties, Inc.” Blue Orca Capital, April 13, 2022.)
Knee-jerk investors who have nothing to gain from a falling share price and who don’t feel like doing their own due diligence sold their shares of Innovative Industrial Properties Inc during the mayhem.
Realizing the report could damage their company’s reputation, Innovative Industrial Properties’ management team quickly released a statement saying the report contained “numerous false and misleading statements.” (Source: “Innovative Industrial Properties Responds to Short-Seller Report,” Innovative Industrial Properties Inc, April 14, 2022.
They added, “Similar to a short-seller report previously issued in 2020, this short-seller report is flawed and demonstrates a basic lack of understanding of commercial real estate generally, the regulated cannabis industry and IIP’s straightforward, simple business model.”
Innovative Industrial Properties stock hasn’t yet recovered from the short-seller report, but it’s trading near a tested support level near $140.00.
Why Wall Street Is Bullish on IIPR Stock
Wall Street analysts don’t seem to care about the short-seller report on Innovative Industrial Properties Inc. No analyst has revised their guidance about Innovative Industrial Properties stock since the report was released.
Why are analysts so bullish on IIPR stock? The company continues to report double-digit revenue and earnings growth, a raft of new acquisitions, and a high dividend yield.
For the first quarter ended March 31, Innovative Industrial Properties Inc announced that its revenue increased by 50% year-over-year to $64.5 million. The company’s net income in the first quarter of 2022 went up by 35% to $34.7 million, or $1.32 per share. Its adjusted funds from operations (AFFO) advanced in the first quarter by 40% year-over-year to $53.8 million, or $2.04 per diluted share. (Source: “Innovative Industrial Properties Reports First Quarter 2022 Results,” Innovative Industrial Properties Inc, May 4, 2022.)
The company ended the first quarter of 2022 with $2.2 billion in total gross assets, with no debt maturing in 2022 or 2023.
Innovative Industrial Properties also recently raised its quarterly dividend for the 13th time in 19 quarters. Not only that, but the company’s board hiked the dividend by 33% year-over-year and 17% quarter-over-quarter to $1.75 per share, for a yield of 4.8%. (Source: “Innovative Industrial Properties Declares First Quarter 2022 Dividends,” Innovative Industrial Properties Inc, March 14, 2022.)
About Innovative Industrial Properties Inc
Founded in 2016, Innovative Industrial Properties is the first publicly traded company on the New York Stock Exchange (NYSE) to provide real estate capital to the medical cannabis industry. (Source: “Our Business,” Innovative Industrial Properties Inc, last accessed May 4, 2022.)
Because marijuana is still illegal in the U.S. at the federal level, it’s difficult for cannabis companies to find capital. That’s where Innovative Industrial Properties comes in. The company acquires properties from medical marijuana growers, which provides those growers with capital to develop their operations. Innovative Industrial Properties Inc has acquired properties in about 20 U.S. states..
Innovative Industrial Properties targets well-funded medical cannabis companies in the $5.0 to $30.0 million range and signs them up to long-term leases of 10 to 20 years. After leasing the properties back to the marijuana growers, Innovative Industrial Properties does what all good landlords do, it increases the rent annually by three percent to 4.5%, providing it with a reliable revenue stream.
At the start of 2020, Innovative Industrial Properties Inc’s portfolio consisted of 47 properties. By the end of the year, that number stood at 66. At a time when many cash-strapped businesses were hunkering down and looking for ways to save money during the COVID-19-related economic downturn, Innovative Industrial Properties was swooping in and snapping up properties.
That torrid pace continued in 2021, with the company closing out the year with 76 properties.
In 2022, from January 1 through May 4, Innovative Industrial Properties acquired six properties and made five lease amendments to provide additional improvements to properties. The transactions represented an aggregate investment of about $182.9 million (comprising purchase prices and commitments to fund future developments and improvements—but excluding transaction costs). (Source: Innovative Industrial Properties Inc, May 4, 2022, op. cit.)
As of May 4, 2022, Innovative Industrial Properties owned 108 properties. Combined, these properties covered approximately 8.1 million rentable square feet.
The Lowdown on Innovative Industrial Properties Stock
Innovative Industrial Properties stock is the best U.S. pot stock when it comes to growth and income.
This is a result of Innovative Industrial Properties Inc’s aggressive acquisition strategy, which helps it report high revenue, earnings, and AFFO growth. This, in turn, helps IIPR stock provide buy-and-hold investors with significant capital appreciation and dividend growth.
