Proclaiming itself as the "leading provider of real estate capital for the medical-use cannabis industry," Innovative Industrial Properties (NYSE:IIPR) is in a league of its own. To be fair, it is the sole pure-play real estate investment trust (REIT) in the marijuana industry.
Tracing its roots to December 2016, when it made its first acquisition, PharmaCann's New York facility, Innovative Industrial Properties may draw the attention of investors who recognize the tremendous growth opportunity in the marijuana industry. Dividend-minded investors may also be drawn to Innovative Industrial Properties since the company -- in accordance with its status as a REIT -- is required to distribute at least 90% of its taxable income to shareholders.
While this brief background on the company is valuable, it hardly provides any great insight, so let's take a look at several charts that will help to familiarize you with this leader in the marijuana industry.
Growing like a weed
From its humble beginning in 2016, when it acquired PharmaCann's 127,000 square-foot cannabis cultivation and processing facility, Innovative Industrial Properties has grown its portfolio at a considerable clip.
Scooping up four properties in 2017 and five properties in 2018, Innovative Industrial Properties grew its portfolio at a steady pace during its first two years as a publicly traded company. But the company kicked things into high gear in 2019, acquiring 31 properties. Currently, Innovative Industrial Properties' portfolio includes 42 properties -- 100% of which are leased -- located in 13 states.
Further evidence of the company's impressive growth is illustrated by the rentable square feet the portfolio represents. Since Dec. 2016, when it acquired its first property of 127,000 rentable square feet, Innovative Industrial Properties has seen its portfolio rise to 2.9 million rentable square feet, which includes 903,000 square feet under development or redevelopment.
Debuting with its initial public offering in Dec. 2016, Innovative Industrial Properties has a short history as a publicly traded company; however, the company's shopping spree during that time period has helped it grow its top line considerably.
In 2017, its first full year as a publicly traded company, Innovative Industrial Properties reported revenue of $6.4 million, yet on a trailing-12-month basis, the company has generated $31.8 million on the top line. Perhaps the more noteworthy figure, though, is the company's prowess at controlling costs and growing profit.
Because of the effect of non-cash charges like depreciation and amortization, some investors prefer to gauge profitability by examining a company's EBITDA instead of its net income. Innovative Industrial Properties' success in growing EBITDA at a rate that exceeds its top-line growth warrants recognition. According to Morningstar, the company expanded its EBITDA margin from 12.5% in 2017 to 53.9% in 2018. The margin expansion has continued recently as well; on a trailing-12-month basis, the company has an EBITDA margin of 77%.
Prioritizing funds from operations
Unlike many marijuana-related stocks, Innovative Industrial Properties offers investors the ability to get paid -- by means of a dividend -- while the industry continues to flourish. Concerned that their investments may go up in smoke, some dividend investors may be circumspect about investing in a nascent industry, but a look at the following chart may allay their fears.
While Innovative Industrial Properties has been steadily raising its distributions to shareholders over the past two years, it hasn't come at a rate that has exceeded its growth in funds from operations (FFO) -- an important metric to consider when evaluating the sustainability of a REIT's dividend. The company's focus on raising the dividend at a rate below that at which it has grown FFO suggests management is unwilling to jeopardize the company's financial health in order to satiate dividend-hungry investors.
A recent investor presentation revealed an additional indication of management's prudent approach to its dividend policy. In the presentation, the company identified a long-term payout ratio target of 75% to 85% of adjusted FFO.
What to watch for in a potentially haze-filled future
With an impressive -- albeit short -- track record of growing its portfolio, revenue, and FFO, it's no surprise that Innovative Industrial Properties may pique the interests of plenty of investors. Besides watching how legislation that could be a boon to the marijuana industry proceeds through Congress, such as the Marijuana Opportunity Reinvestment and Expungement Act, investors should see how the company fares in reaching its targeted payout ratio, indicating that management is keen on ensuring the company's financial well-being.