SAN DIEGO - Innovative Industrial Properties Inc. (NYSE:IIPR), a real estate investment trust specializing in the regulated U.S. cannabis industry, has expanded its portfolio with the purchase of a 16-acre property in Ocala, Florida. The acquisition, which includes 145,000 square feet of industrial space, was finalized at a price of $13 million, or approximately $90 per square foot.
The company has also entered into a long-term, triple-net lease with a subsidiary of AYR Wellness Inc. (CSE: AYR.A, OTCQX: AYRWF), a leading cannabis operator. AYR plans to redevelop one of the buildings on the property, transforming 98,000 square feet into a regulated cannabis cultivation facility.
Innovative Industrial Properties has committed to reimburse up to $30 million for the redevelopment, bringing its total expected investment to around $43 million, excluding transaction costs.
This deal adds to Innovative Industrial Properties' existing relationship with AYR, which includes a leased processing facility in Ohio. AYR reported revenues of $118 million and an adjusted EBITDA of $29 million for the first quarter of 2024. In Florida, AYR currently operates 64 dispensaries and has 745,000 square feet of production capacity, not including the new acquisition.
Florida's medical-use cannabis market is the largest in the U.S., with over 880,000 qualified patients and 2,300 qualified physicians as of May 31, 2024. Regulated sales in 2023 reached $2.6 billion, according to BDSA. With a vote on the legalization of adult-use cannabis expected in November 2024, existing licensed medical cannabis operators may soon be authorized to sell to adults for personal use.
As of today, Innovative Industrial Properties owns 108 properties across 19 states, totaling 9.0 million square feet, of which 722,000 square feet are under development or redevelopment. The company has invested $2.5 billion in its portfolio to date, including future commitments for construction and property improvements.
The information in this article is based on a press release statement.
In other recent news, Innovative Industrial Properties reported a slight decrease in Q1 2024 revenue, down to $75.5 million, a 1% decrease from the previous year. Despite this, the company executed new leases for four properties and completed construction on three fully leased properties, maintaining a solid liquidity position with over $200 million available.
Piper Sandler recently reiterated a Neutral rating on the company's stock, noting the company's progress in moving beyond recent tenant issues and anticipating a return to external growth in approximately 12 months.
The company is also closely monitoring the Administration's re-scheduling process for cannabis, currently in a 60-day public commentary phase, as changes could significantly impact its business and the broader cannabis industry. Despite potential administrative risks, there are positive signs for the sector with top multi-state operators showing positive cash flow and a decrease in licenses observed last year, pointing towards the necessity for industry consolidation.
The company expects US-regulated cannabis sales to hit $58 billion by 2030 and is actively progressing on leasing vacant and underdevelopment assets, with several major projects completed and more on the horizon.
InvestingPro Insights
Innovative Industrial Properties (NYSE:IIPR) continues to demonstrate robust financial health and strategic growth in the burgeoning U.S. cannabis industry. An InvestingPro analysis reveals a company that stands out for its impressive gross profit margins, which were at a remarkable 91.59% over the last twelve months as of Q1 2024. This financial metric is particularly noteworthy as it signifies the company's efficiency in managing its cost of goods sold and maximizing profit from its revenue streams.
Moreover, IIPR has been consistent in rewarding its investors, raising its dividend for seven consecutive years, showcasing a commitment to shareholder returns. As of the latest data, the dividend yield stood at 6.81%, an attractive figure for income-focused investors. This, combined with a high return over the last year, with a price total return of 64.52%, reflects the company's strong performance and investor confidence.
Investors should note, however, that IIPR's stock price movements have been quite volatile, which may require a higher risk tolerance. Nevertheless, the company's market capitalization stands at a solid $3.03 billion, and with a P/E ratio of 18.6, it indicates that while the company trades at a significant valuation, it may be justified by its earnings potential and growth prospects.
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