Shares of real estate investment trust (REIT) Innovative Industrial Properties (IIPR -2.43%) rose roughly 18% in August according to data from S&P Global Market Intelligence. Including that gain the landlord of marijuana-growing facilities was up an impressive 62% in the first eight months of 2020. At this point it has more than recouped the losses it experienced in the early 2020 bear market. Notably, unlike many other REITs, COVID-19 doesn't appear to have had much of an impact here.
The biggest news out of Innovative Industrial Properties in August was earnings, which were released at the beginning of the month. While many real estate investment trusts spent a great deal of time explaining how difficult the first half of 2020 was because of the closure of non-essential businesses and social distancing, Innovative Industrial reported a 183% revenue increase. Adjusted funds from operations (AFFO), which is like earnings for an industrial company, increased by 263%. Its July dividend was 77% higher year over year. This fast-growing REIT hasn't skipped a beat.
That said, Innovative Industrial did provide three tenants with rent deferrals in the first half. Those tenants all paid their full July rents and the agreed upon deferral amounts. Put another way, the REIT was back to collecting all of its rents with no issues in July. Better yet, in late August, it announced an agreement with a lessee to build a new greenhouse and additional processing facilities at an existing property. Portfolio growth hasn't stopped here, either. Investors are right to be excited about the REIT's results through what has been a very difficult economic environment.
Innovative Industrial Properties is a niche REIT focused on a unique growth opportunity. However, owning the facilities in which marijuana is grown isn't a good fit for everyone, despite the impressive growth the company has achieved. There are very real risks to consider when you put all of your eggs in just one narrow basket. Moreover, investors have priced in a lot of good news here, given the impressive stock price gain so far in 2020. Looking at that another way, the stock's price-to-AFFO ratio, using second-quarter AFFO as a run rate, is around 25 times. That's a pretty lofty figure for an REIT, even one that has been growing as fast as Innovative Industrial Properties. Dividend Growth investors should be interested in Innovative Industrial Properties, but they should go in cognizant of the risks here.