Key Factors to Impact Innovative Industrial (IIPR) Q2 Earnings

Innovative Industrial Properties, Inc. IIPR is expected to report second-quarter 2021 results after the market closes on Aug 4. 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, delivered a surprise of 3.52%, in terms of adjusted funds from operations (FFO) per share.

Over the last four quarters, it surpassed estimates on two occasions for as many misses, the average negative surprise being 0.79%. The graph below depicts the surprise history of the company:

Innovative Industrial Properties, Inc. Price and EPS Surprise

Innovative Industrial Properties, Inc. Price and EPS Surprise

Innovative Industrial Properties, Inc. price-eps-surprise | Innovative Industrial Properties, Inc. Quote

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.

The REIT’s expansion efforts continued in the second quarter too, resulting in the company owning 72 properties as of Jul 6, 2021. The properties aggregate 6.6 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 June-end quarter.

In the operating update released in July, management noted that since the beginning of the second quarter through Jul 6, it has made four acquisitions in Massachusetts, Michigan and Pennsylvania. Moreover, it executed three lease amendments to provide additional tenant improvements at properties located in Florida and Pennsylvania. With these deals, the company not only established new tenant relationships with Sozo Companies, Inc. and Temescal Wellness of Massachusetts, LLC, but also expanded its existing ties with Green Peak Industries LLC (Skymint), Harvest Health & Recreation Inc., Jushi Holdings Inc. and Parallel.

Innovative Industrial Properties is anticipated to have benefited from its 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 $45.65 million, suggesting a surge of 87.5% 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 second-quarter FFO per share has remained unrevised at $1.63 in a month’s time. Nevertheless, it calls for nearly 37% year-over-year growth.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a 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 3 (Hold) and has an Earnings ESP of 0.00%.

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 surprise this quarter:

National Storage Affiliates Trust NSA, scheduled to report quarterly numbers on Aug 3, currently has an Earnings ESP of +2.14% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Life Storage, Inc. LSI, slated to release second-quarter numbers on Aug 3, has an Earnings ESP of +2.53% and carries a Zacks Rank of 3, at present.

OUTFRONT Media Inc. OUT, set to announce quarterly results on Aug 5, currently has an Earnings ESP of +14.29% and carries 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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