Innovative Industrial Properties (NYSE:IIPR) is expanding its real estate empire. The cannabis-focused real estate trust (REIT) said on Monday that it purchased two properties in Pennsylvania and North Dakota, which together comprise 105,000 square feet of industrial space, for $24.1 million plus transaction costs. IIP is acquiring the properties from GR Companies Inc., which operates under the name Grassroots.

Upon closing, IIP immediately entered into long-term lease agreements with Grassroots. The vertically integrated dispensary company will continue to operate the sites as regulated cannabis cultivation and processing facilities. IIP also agreed to reimburse Grassroots for up to $13.2 million in tenant improvement projects.

A cannabis production facility

Innovative Industrial Properties is helping Grassroots expand its cannabis-growing operations. Image source: Getty Images.

"Grassroots is an operator with a proven track record of bringing the highest quality products to market, resulting in tremendous brand recognition and patient and consumer loyalty," IIP CEO Paul Smithers said in a press release. "We are proud to team with them once again on these two facilities, providing an efficient capital solution for them to focus on expanding their presence in both states."

IIP previously conducted a sale-leaseback transaction with Grassroots in October. At the time, IIP acquired a 70,000 square foot property in Illinois, which Grassroots plans to expand to 120,000 square feet, for a total of $28.2 million in upfront cash and improvement reimbursements. 

"We are thrilled to partner again with Grassroots as their real estate capital partner in Pennsylvania and North Dakota, on the heels of our transaction with Grassroots' Illinois facility in October," Smithers said.

Grassroots intends to use some of the capital it raised in the transaction to boost its cannabis production in these markets.

"IIP moved quickly and effectively addressed a key part of our capital plan, reinforcing their industry reputation as a reliable, long-term real estate capital partner," Grassroots Founder and CEO Mitchell Kahn said. "With our anticipated expansion plans and capital improvements at both the Pennsylvania and North Dakota properties, we expect to significantly ramp production in both facilities to meet the tremendous and growing demand for our products by patients in these states."

More properties equal more dividends for shareholders 

IIP's real estate portfolio now includes 46 properties in 14 states that together span 3.1 million rentable square feet. These properties are highly profitable, with an average current yield on invested capital of approximately 13.6%. 

As a REIT, IIP passes these profits on to investors via its fast-growing dividend. IIP recently boosted its quarterly cash payout by 28% sequentially and 186% year over year, to $1 per share. That places its stock's annualized dividend yield at a hefty 5.3%.