Innovative Industrial Boosts Florida Base With Asset Buyout

In a bid to grow its portfolio and capitalize on the healthy market fundamentals, Innovative Industrial Properties IIPR recently announced completing the acquisition of a Florida property for $19.6 million from an affiliate of Parallel, a reputed privately-held multi-state cannabis operator in the United States. Located in Lakeland, this property expands the company’s footprint to 63 properties, with 4.9 million square feet across 16 states.

This real estate investment trust (REIT), focused on cannabis-centered real estate portfolio, has also entered into a long-term, triple-net lease agreement with a subsidiary of Parallel. It plans to keep operating the property as a regulated medical cannabis cultivation and processing facility.

Currently, this 65,000-square-foot industrial and greenhouse indoor cultivation and production space is in operation and Parallel plans to develop an additional 155,000 square feet of area, in turn creating a total of roughly 220,000 square feet of industrial and indoor cultivation space. Considering the full reimbursement of the property development, Innovative Industrial Properties’ total investment would be $56.4 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, Nevada and Texas. Its operations comprise 42 retail dispensaries, a portfolio of proprietary consumer brands and innovative products, as well as high-quality cultivation, production and research facilities.

Parallel is the corporate parent company to Surterra Wellness — its reputed retail brand in Florida and one of the original licensed vertical operators in the Sunshine State. With its footprint of 39 retail dispensaries in Florida, Parallel is well poised to bank on the growing market for medical cannabis products.

Notably, the legalization of marijuana’s medical use across several states, and the permission for recreational consumption in some have opened up opportunities for the cannabis industry. Therefore, with more states in the United States giving cannabis the green light, Innovative Industrial Properties has incentives to partner with the experienced medical-use cannabis operators and serve as a vital source of capital by acquiring and leasing back their real-estate assets. Its plan is to acquire the existing, redeveloped and under-development industrial buildings, including attached and enclosed greenhouse facilities.

Remarkably, the expansion in Florida is a prudent step for Innovative Industrial Properties. This is because Florida has emerged as one of the largest and one of the fastest growing medical-use cannabis markets in the United States. Following the authorization of sale of flower in 2019, the authorities in Florida also enhanced its medical cannabis program last month by allowing the sale of edibles, which according to Marijuana Business Daily, is projected to account for an additional $250 million in sales in 2021.

Moreover, as of Sep 11, 2020, there were more than 410,000 qualified patients and close to 2,600 qualified physicians in the medical-use cannabis program, according to the Florida Office of Medical Marijuana Use. Innovative Industrial Properties is also well poised to benefit from this favorable trend with three properties and representing a total investment worth $116.9 million in the properties it owns in Florida, including its committed funding for future development and tenant improvements.

Innovative Industrial Properties currently carries a Zacks Rank #3 (Hold). Year to date, shares of the company have outperformed the industry. The stock has rallied 62.5% against the industry’s decline of 8.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Alpine Income Property Trust, Inc.’s PINE FFO per share estimate for 2020 has been revised 2.6% upward to $1.18 over the past month. It currently carries a Zacks Rank of 2.

Duke Realty Corporation’s DRE Zacks Consensus Estimate for 2020 FFO per share moved up 3.5% to $1.49 over the past two months. The company currently carries a Zacks Rank of 2.

Sabra Healthcare REIT, Inc.’s SBRA FFO per share estimate for the ongoing year has moved 1.8% north to $1.74 over the past month. The company currently holds a Zacks Rank of 2.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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