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Key Factors to Impact Innovative Industrial (IIPR) Q1 Earnings

Innovative Industrial Properties, Inc. IIPR is expected to report first-quarter 2021 results around May 5. The company’s quarterly results will likely display year-on-year growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this real estate investment trust (REIT), focused on the cannabis-centered real estate portfolio, reported a negative surprise of 14.57% in terms of adjusted funds from operations (FFO).

Over the last four quarters, it surpassed estimates on two occasions for as many misses, the average beat being 1.61%. The graph below depicts the surprise history of the company:

Let’s see how things have shaped up prior to the 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 acquisitions.

The legalization of marijuana for medical use across several states in the United States, as well as the permission of adult consumption in some, has created opportunities for the cannabis industry. Therefore, with more states in the nation giving cannabis the green light, Innovative Industrial Properties has incentives to partner with experienced medical-use cannabis operators, and serve as a vital source of capital by acquiring and leasing back their real-estate assets. Its strategy is to acquire the existing, redeveloped and under-development industrial buildings, including attached enclosed greenhouse facilities.

Expansion efforts continued in the first quarter too, resulting in the company owning 68 properties as of Apr 5, 2021. The properties aggregate 6.0 million rentable square feet of space that were fully leased, with a weighted-average remaining lease term of 16.7 years. These expansion efforts are likely to have boosted the top line during the March-end quarter.

Notably, in January, the company executed a new long-term lease with Holistic Industries Inc. for its Los Angeles, CA property, bringing Innovative Industrial Properties’ property portfolio to 100% leased.

In the operating update released in April, the company noted that since the beginning of the year through Apr 5, it made three acquisitions (including two new properties and additional land expansion at an existing property) for properties located in California, Florida and Texas, and executed three lease amendments to provide additional tenant improvements at properties located in Michigan, New York and Pennsylvania. Except the Pennsylvania transaction, all other moves were made in the first quarter.

Innovative Industrial Properties is anticipated to have benefited from expansion measures during the quarter under review on contributions from acquisitions and leasing of new properties, additional tenant improvement allowances and construction funding at existing properties resulting in adjustments to base rent, and contractual rental escalations at some properties.

The Zacks Consensus Estimate for quarterly revenues is currently pegged at $41.3 million, suggesting a surge of 95.5% year on year.

Nonetheless, Innovative Industrial Properties’ activities during the quarter in discussion were inadequate to gain analysts’ confidence. The Zacks Consensus Estimate for the first-quarter FFO per share has been revised nearly 6% downward to $1.42 in a month’s time. Nevertheless, it calls for 26.8% year-over-year growth.

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 of 4 (Sell) and has an Earnings ESP of -2.82%.

Stocks to Consider

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:

Healthcare Trust of America, Inc. HTA, slated to release first-quarter results on May 6, has an Earnings ESP of +0.33% and carries a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cedar Realty Trust, Inc. CDR, set to report quarterly numbers on May 6, currently has an Earnings ESP of +1.54% and carries a Zacks Rank of 3.

Apple Hospitality REIT, Inc. APLE, scheduled to release quarterly earnings on May 6, currently has an Earnings ESP of +20% and a Zacks Rank of 3.

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

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