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Key Factors to Impact Innovative Industrial (IIPR) Q2 Earnings

Innovative Industrial Properties, Inc. IIPR is scheduled to report second-quarter 2020 results on Aug 5, after the market closes. The company’s quarterly results will likely display year-on-year growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this real estate investment trust (REIT), focused on the cannabis-centered real estate portfolio, delivered a positive surprise in terms of adjusted funds from operations (FFO).

Results reflected robust increase in rental revenues, driven mainly by the acquisition and leasing of new properties, in addition to contractual rental escalations at certain properties.

Let’s see how things have shaped up prior to the second-quarter earnings release.

Factors at Play

Innovative Industrial Properties, focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated state-licensed cannabis facilities, is likely to keep gaining from its acquisitions.

The legalization of marijuana’s medical use across several states, as well as the permission of adult consumption in some, has created 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 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.

From Jan 1 through May 6, 2020, the company has acquired nine properties, aggregating 1.1 million rentable square feet (including expected rentable square feet upon completion of properties under development). These properties are located in Colorado, Florida, Illinois, Massachusetts, Michigan, Ohio and Virginia. These nine properties represent a total investment of $202.1 million by the company.

These expansion efforts continued in the remaining of the second quarter too, resulting in the company owning 61 properties as of Jul 20, 2020. The properties aggregate 4.5 million rentable square feet that were 99.2% leased, with a weighted-average remaining lease term of 16.1 years.  These expansion efforts are likely to have boosted the top line during the June-end quarter.

The company is anticipated to have benefited from these measures during the quarter under review on contributions from acquisitions and leasing of new properties, along with contractual rental escalations at some properties.

Moreover, in a number of states, both medical-use and adult-use cannabis operations have been recognized by the state and the local government authorities as “essential businesses” per state guidelines. These operations were allowed to remain open and operational, which was extended to the supply chain of the regulated cannabis industry as well, including cultivation, processing, distribution and dispensary activities.

The Zacks Consensus Estimate for quarterly revenues is currently pegged at $25.4 million, suggesting a surge of 194.7% year on year.

Moreover, prior to the second-quarter earnings release, analysts seem to have become optimistic about the company’s prospects as the Zacks Consensus Estimate for the quarterly FFO per share moved 1.7% north to $1.22. The consensus mark suggests year-over year growth of 106.8%.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Innovative Industrial Properties this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Innovative Industrial Properties currently carries a Zacks Rank of 3 and has an Earnings ESP of 0.00%.

Stocks to Consider

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Healthcare Trust of America, Inc. HTA, set to report quarterly numbers on Aug 6, currently has an Earnings ESP of +0.96% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Public Storage PSA, slated to release results on Aug 5, has an Earnings ESP of +0.41% and carries a Zacks Rank of 3, at present.

National Storage Affiliates Trust NSA, scheduled to announce earnings figures on Aug 6, has an Earnings ESP of +0.44% and holds a Zacks Rank of 3 currently.

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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