Innovative Industrial Properties (NYSE:IIPR), a cannabis industry-focused real estate investment trust (REIT), reported strong third-quarter 2020 results after the market close on Wednesday, Nov. 4. 

Shares closed up 3.5% in Wednesday's after-hours trading session. We can attribute the market's initial reaction to both revenue and earnings coming in higher than the Wall Street consensus estimates. This after-hours performance bodes well for the stock's performance on Thursday.

In 2020, Innovative Industrial Properties (often called IIP) stock has returned 82.1% through Wednesday's regular trading session -- 10 times the S&P 500's 8.2% return over this period.

Innovative Industrial Properties' key numbers


Q3 2020

Q3 2019



$34.3 million $11.6 million 197%

Operating income

$20.4 million  $6.8 million 199%

Net income

$18.9 million $6.2 million  205%

Earnings per share (EPS)

$0.86 $0.55 56%

Adjusted funds from operations (AFFO)*

$27.9 million $9.5 million 192%

AFFO per share

$1.28 $0.86 49%

Data source: Innovative Industrial Properties. *Adjusted funds from operations (AFFO) is a closely watched metric for REITs, as it's the main driver of dividend changes. **Calculated using exact numbers.

Wall Street had been expecting EPS of $0.78 on revenue of $29.6 million, so IIP easily surpassed both estimates.

Revenue growth continues to be driven primarily by the acquisition of new properties, along with contractual rental increases at some properties.

The company ended the period with $161.1 million in cash and cash equivalents and $451.2 million in short-term investments, totaling $612.3 million. It has no debt, other than $143.7 million of unsecured debt.

For context, in the second quarter, revenue soared 183% year over year to $24.3 million, EPS surged 143% to $0.73, and AFFO per share jumped 102% to $1.19.

A marijuana leaf on a white background.

Image source: Getty Images.

What happened with Innovative Industrial Properties in the quarter (and since the quarter ended through Nov. 4)?

  • It paid a quarterly dividend of $1.17 per share on Oct. 15 to stockholders of record as of Sept. 30, representing an increase of approximately 50% from the year-ago period. Shares are yielding 3.5% as of the market close on Wednesday.
  • During the quarter, IIP acquired five properties: three in New Jersey and one each in Michigan and Florida. (It hasn't acquired any new properties so far in the fourth quarter, through Nov. 4.) For context, this is the same number of properties that it acquired in the second quarter. Both the second and third quarters mark a decline in recent acquisition activity, as the company acquired seven properties in the first quarter and 15 properties in the fourth quarter of 2019. Last quarter, management said during the earnings call that the slowdown was due to the COVID-19 pandemic, which has caused many entities to temporarily pause dealmaking. 
  • Holistic Industries, the company's long-term tenant in several states, entered into a definitive agreement to acquire the operational licenses from the tenant at IIP's Los Angeles property, which is in receivership. The deal is subject to government approvals for the transfer of the licenses and usual closing conditions. 
  • During the quarter, the company raised $248.2 million in a July public stock offering of nearly 3.1 million shares of common stock.
  • Also during the quarter, IIP raised $58.1 million in its September "at-the-market" equity offering of 474,000 shares of common stock.

Here's the current snapshot of Innovative Industrial Properties' portfolio, taken from the earnings release: "As of November 4, 2020, IIP owned 63 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania and Virginia [16 states], totaling approximately 5.0 million rentable square feet (including approximately 1.7 million rentable square feet under development/redevelopment), which were 99.3% leased (based on square footage) with a weighted-average remaining lease term of approximately 16.1 years." 

The company did not enter any new states in the third quarter. 

Rent collections update

There have been no adverse changes since last quarter on the topics of rent deferrals and collections. So, I'll provide an update after reiterating what I wrote after Q2 results were released:

[When Q1 results were released], the company reported that it had "worked with three of its 21 tenants to provide temporary rent deferrals" to essentially give them some financial breathing room during the early stages of the pandemic. These deferrals were "structured to apply a portion of the security deposit IIP holds 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 company reported that all three tenants are current on their rent under the terms of the rent deferral agreements. Moreover, IIP hasn't entered into any such agreements with any additional tenants. 

The update: All three tenants that received rent deferrals paid rent in full for July, August, September, and October, including pro rata repayments of the security deposit and deferred rent. IIP hasn't entered into any such rent deferral agreements with any additional tenants. 

Looking ahead

Innovative Industrial Properties turned in another robust quarter, despite the challenges associated with the pandemic.

The company isn't holding a Q3 earnings call, so we won't have any management color on topics such as deal pipeline. (Management generally just holds calls after the release of results for Q2 and Q4, though made an exception in Q1 due to the then new COVID-19 crisis.) 

One thing we know for sure, however, is that IIP's potential market size just got a little bigger, thanks to the Nov. 3 election. The company buys properties in states where medical marijuana is legal, and that number increased by two to 36 (along with Washington, D.C.) after voters in Mississippi and South Dakota voted to legalize marijuana for medical use. (As an aside, residents in four states -- New Jersey, Arizona, Montana, and South Dakota -- gave the green light to legalize recreational marijuana.)

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