Key Factors to Impact Innovative Industrial (IIPR) Q1 Earnings

Innovative Industrial Properties, Inc. IIPR is scheduled to report first-quarter 2020 results on May 6, after the market closes.

In the last reported quarter, this real estate investment trust (REIT), which is focused on the cannabis-centered real estate portfolio, reported adjusted funds from operations (FFO) of $1.18, reflecting a 211% surge from the prior-year quarter.

Results indicated robust increase in rental revenues, driven mainly by the acquisition and leasing of new properties, in addition to contractual rental escalations at certain properties.

Let’s see how things have shaped up prior to the first-quarter earnings release.

Factors at Play

Innovative Industrial Properties, focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated state-licensed cannabis facilities, is likely to keep gaining from its strategic acquisitions.

The company aims to expand its presence in states with robust medical cannabis-approved programs. Its strategy is to acquire existing, redeveloped and under development industrial buildings, including attached enclosed greenhouse facilities.

Particularly, from Jan 1, 2019 through Feb 26, 2020, the company acquired 40 properties, aggregating 2.2 million rentable square feet (including expected rentable square feet upon completion of properties under development). The properties are located in Arizona, California, Colorado, Florida, Illinois, Massachusetts, Michigan, Nevada, North Dakota, Ohio, Pennsylvania and Virginia. Moreover, it executed 10 lease amendments to provide additional tenant improvements at properties located in Arizona, California, Illinois, Massachusetts, Michigan, Minnesota and Pennsylvania.

These expansion efforts continued in the rest of the first quarter too, resulting in the company owning 55 properties as of Apr 22, 2020. The properties aggregate 4.1 million rentable square feet that were 99.1% leased, with a weighted-average remaining lease term of about 16 years.  These expansion efforts are likely to have boosted its top line in the March-end quarter.

Notably, the legalization of marijuana’s medical use in several states as well as allowing adult consumption in some states have opened up scope for the cannabis industry. Therefore, with more states in the United States giving cannabis the green light, Innovative Industrial Properties has incentive to acquire additional properties.

The company is anticipated to have benefited from these measures during the January-March quarter on contributions from acquisitions and leasing of new properties, along with contractual rental escalations at some properties.

The Zacks Consensus Estimate for first-quarter revenues is currently pegged at $21.2 million, suggesting a surge of 211% year on year. The consensus estimate for FFO per share is 99 cents, indicating an 83.3% increase from the prior year.   

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Innovative Industrial Properties this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Innovative Industrial Properties currently carries a Zacks Rank #1 and has an Earnings ESP of 0.00%.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Extra Space Storage Inc. EXR, slated to release first-quarter earnings on May 6, has an Earnings ESP of +0.21% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Americold Realty Trust COLD, scheduled to announce earnings results on May 7, has an Earnings ESP of +9.74% and currently holds a Zacks Rank #3.

VEREIT, Inc. VER, set to report quarterly numbers on May 20, has an Earnings ESP of +5.15% and carries a Zacks Rank of 3 currently.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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