Industry actions confidence in real estate investment (FPI) Innovative industrial properties (NYSE: IIPR), which owns marijuana-related assets, fell around 16% in the first hour or so of trading on February 25. The reason for the gloomy mood on Wall Street was the results release after the company closed on February 24. Only the numbers were good enough.
Innovative Industrial Properties reported a year-over-year revenue increase of approximately 110% in the fourth quarter of 2020, a massive increase for a REIT. Adjusted sound operating funds (FFO), a measure of REIT similar to industrial company earnings, rose to $ 1.29 per share, from $ 1.18 per share in the last quarter of 2019. And the owner again increased his dividend over the course of the year. quarter, marking the fourth consecutive quarterly increase. The current rate, meanwhile, is well 24% higher than it was a year ago. Much of this success is due to the continued expansion of the portfolio, with the release of results describing a series of acquisitions completed in 2020.
Only investors were clearly looking for more. For example, analysts had projected adjusted FFOs in the range of $ 1.40 to $ 1.50 per share. Part of the problem here is that the rapid growth of innovative industrial property has been funded by issuance of shares and a senior exchangeable note (which can be converted into shares and thus affects the number of shares). So the improvement in results here is spread over more stocks, which hinders the growth of adjusted FFO per share. And while the REIT still has a relatively small portfolio of around 67 properties, further acquisitions will be needed if it is to keep up with its historically impressive growth rate. This could be a tall order, given he has added 22 properties in the last 14 months or so, increasing his portfolio size by almost 50%. Even if management can repeat this number of transactions in 2021, its number of buildings would increase “by only” 33%.
Innovative Industrial Properties has a unique and thriving niche thanks to serve as a source of funding for the marijuana industry. Notably, the stock is up around 880% since its IPO in late 2016, so a pullback here isn’t exactly shocking given that investors have clearly incorporated a lot of good news. Indeed, while there is likely to be more growth to come as the REIT expands its portfolio, the REIT’s growth rate will naturally begin to decline as it grows in size. Investors seem to be faced with this fact today.
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