Contrarian Value Ideas

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>>> Innovative Industrial Properties (NYSE: IIPR) is something of a unicorn in the world of marijuana stocks because it doesn't actually grow and sell pot. Instead, the company operates as a real estate investment trust (REIT).


https://finance.yahoo.com/news/bull-market-2-spectacular-growth-125000070.html


Innovative Industrial Properties acquires cultivation facilities, distribution centers, and other related real estate from state-licensed cannabis operators. It then rents these facilities back to the operators via long-term arrangements.

This model provides recurring rental income for Innovative Industrial Properties and offers more efficiency for the operators by letting them focus on the business of growing and selling marijuana.

It's important to note that the REIT only rents to operators in the medical cannabis business, which is more regulated and enjoys much broader legalization nationwide than the recreational use market. At the time of this writing, about 90% of Innovative Industrial Properties' portfolio was rented out to multi-state operators (MSOs), and around 60% of its tenants are publicly traded companies.

In 2023, the company reported revenue of $310 million and net income of $164 million. Those two figures rose 12% and 5%, respectively, from 2022. Adjusted funds from operations -- an important measure of REIT performance -- for the year totaled $257 million, up 10% from the prior year.

As of the end of the year, the REIT had 108 properties in 19 states. Currently, 95.8% of its operating portfolio is rented via triple net leases, where the tenant pays most of the costs associated with maintaining the property in addition to rent.

Another stellar figure is the rental collection rate, which stood at 100% as of February. The company also has a superior yield and track record of raising its dividend over time. Its current yield of 7% is considerably higher than the average stock trading on the S&P 500 (1.3%), and its dividend has risen 300% over the trailing-five-year period.

The cannabis market can be a risky place to put cash, at least until there is some measure of uniform legislation on a federal level. That said, the medical cannabis niche represents a vast and growing addressable market.

Innovative Industrial Properties operates an unusual model within this industry that lends itself to steady, recurring returns for the business and its shareholders. Investors might want to consider getting a slice of the action.

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