Earlier this month, Innovative Industrial Properties (NYSE:IIPR), a cannabis-focused real estate investment trust (REIT), reported strong first-quarter 2020 results.

Revenue soared 210% year over year to $21.1 million. Earnings per share surged 118% to $0.72, and adjusted funds from operations (FFO) -- a key profitability metric for REITs -- jumped 107% to $1.12 per share.  

This type of robust performance has enabled shares to continue to outperform the cannabis group and the broader market. In 2020, Innovative Industrial Properties (also known as IIP) stock is up 7.7% through the end of May, while shares of industry bellwether Canopy Growth are down nearly 18%, and the S&P 500 (including dividends) is down 5%. Over the last three years, IIP stock is up a whopping 374%, while the broader market has returned about 34%.

Earnings releases tell only part of the story. Much valuable information is usually covered on the analyst conference calls following these releases. Like many companies, this was even more true for IIP's Q1 call because of the COVID-19 pandemic.

Here are three things you should know from IIP's first-quarter earnings call. 

Close-up of top of a marijuana plant with a cloudy blue sky in background.

Image source: Getty Images.

Medical and recreational marijuana businesses are generally considered "essential businesses"

From CEO Paul Smithers' remarks: 

In the vast majority of situations, medical-use and adult-use cannabis has been determined either formally or by implication to be an essential business that can continue to operate as an exception to general state and local shutdown orders. The essential designation has generally been applied throughout the supply chain.

There have been certain exceptions, however, such as in Massachusetts, where the governor permitted medical-use cannabis businesses to continue to operate, but shut down adult-use cannabis businesses.

The fact that most companies throughout the U.S. medical-use and adult-use cannabis supply chains have been deemed "essential businesses" has certainly been a big positive for the country's cannabis market and, in turn, for IIP. However, Smithers said the social distancing measures implemented by authorities and businesses to slow the spread of the virus have hurt cannabis sales. In other words, the increases in curbside pickup and online ordering haven't fully made up for the loss of business from brick-and-mortar retailers. 

The good news for the U.S. cannabis market, of course, is that state economies have largely begun to open. Many states are opening in phases.

As to Massachusetts, which Smithers mentioned, recreational marijuana shops were allowed to reopen on May 25 after being closed for two months. However, during the first phase of the state's reopening, only walk-up or curbside sales are permitted.

IIP gave temporary rent deferrals to three of its 21 tenants

From CFO Catherine Hastings' remarks:

Throughout March and April, we've been in discussions with each of our tenants [about their financial conditions in light of the pandemic] ... In light of those discussions, we've worked with three of our 21 tenants to provide temporary rent deferrals.

[These are] generally structured to apply a portion of the security deposit we hold under each lease to pay April rent in full, defer rent for May and June in full and provide for the pro rata repayment of the security deposit and deferred rent over an 18-month time period starting July 1.

The total from the amended lease agreements is about $2.3 million. This represents only about 3% of the company's total Q1 revenue annualized, so doesn't seem to be a concern, at least at this point. Investors do, however, need to watch this issue; I plan on covering it again after the company's Q2 earnings are released.  

Executive Chairman Alan Gold said that management is "fairly confident" that it's dealt with all the financial issues that its tenants might be experiencing. In other words, management doesn't think there will be any near-term negative surprises involving tenants finding it challenging to pay their full rent on time.

The company's pipeline remains "very strong"

From V.P. of Investment Ben Regin's remarks:

The pipeline is very strong right now. ... We're seeing continued demand for this type of capital solution [sale-leasebacks]. There [are] still a lot of very high-quality operators out there continuing to grow their businesses. ... And we have the ability to be very disciplined and selective and work with the top companies in the country and support their business.

Gold added the yields in the company's pipeline "have remained very high." He said they're seeing transaction opportunities "with yields north of 12%" and "close to the 15%" level.

For context, at the time of its last earnings call in late February, the company's average yield on invested capital was about 13.3% for its then 51-property portfolio. (IIP didn't provide this figure in its Q1 earnings release, at which time its portfolio included 55 properties.)

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