Innovative Industrial Properties (IIPR 1.81%) released solid third-quarter results after the market close on Wednesday.

Here's how the quarter turned out for the cannabis-industry-focused real estate investment trust (REIT) and its investors.

Innovative Industrial Properties' key numbers

Metric Q3 2021 Q3 2022 Change YOY
Revenue  $53.9 million $70.9 million 32%
Net income $29.8 million $37.3 million 25%
EPS $1.20 $1.32 10%
AFFO $45.0 million $60.1 million 34%
AFFO per share $1.71 $2.13 25%

Data source: Innovative Industrial Properties. YOY = year over year. EPS = earnings per share. AFFO = adjusted funds from earnings.

Revenue growth was "driven primarily by the acquisition and leasing of new properties, additional building infrastructure allowances provided to tenants at certain properties that resulted in adjustments to base rent, and contractual rental escalations at certain properties," the company said in the earnings release.

Wall Street was looking for EPS of $1.29 on revenue of $68.4 million, so IIP (as the company is sometimes called) beat both expectations.

That said, REIT investors are generally more focused on funds from operations than EPS because FFO drives dividend changes. This metric adds depreciation expense back to net income and makes a few other adjustments to net income to reflect a REIT's cash flow.

The company's third-quarter adjusted FFO growth of 25% YOY is robust, though not as strong as it has been historically.

IIP's dividend is yielding about 6.8% as of the market's close on Wednesday.

For context, in the second quarter, the company's revenue jumped 44% YOY to $70.5 million. EPS rose 21% to $1.42, and adjusted FFO per share increased 30% to $2.14.

What happened with Innovative Industrial Properties in the quarter (and since the quarter ended through Nov. 2)

  • Acquired a Massachusetts industrial property, which operates as a regulated cannabis cultivation and processing facility, in a sale-leaseback transaction with a subsidiary of Curaleaf Holdings for $21.5 million (about $207 per square foot).
  • After the quarter ended, sold a Pennsylvania industrial property for $23.5 million (about $461 per square foot).
  • Paid a quarterly dividend of $1.80 per share on Oct. 14 to stockholders of record as of Sept. 30. The dividends declared for the year ended Sept. 30 represent an increase of 25% over dividends declared for the year-ago period.

Long-term investors in any company should never give too much weight to just one quarter's results, or even just one year's results, for that matter. That said, IIP's acquisition of just one property during the third quarter represents a slowdown in recent acquisition activity. In both the first and second quarters of this year, the company acquired four properties.

At the end of the third quarter, IIP owned 111 properties (109 operating and two under construction) across 19 states. The 109 operating properties are 100% leased (triple-net leases), while the two under construction are not leased.

A good quarter financially, but slow acquisition activity

In short, Innovative Industrial Properties turned in good quarterly financial results, though investors will want to see acquisition activity pick up in the relatively near future.  

The company has an analyst earnings call scheduled for Thursday at 1 p.m. ET. Investors can expect management to share additional color on the quarter's performance, as well as its general outlook for the cannabis industry and the company's growth prospects.