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Innovative Industrial Properties IIPR recently announced that it has closed the acquisition of a Florida property for $13.0 million. The company acquired the property to enhance its portfolio and bank on healthy market fundamentals.

This real estate investment trust (“REIT”), focused on a cannabis-centered real estate portfolio, also entered into a long-term, triple-net lease agreement for the property with a subsidiary of AYR Wellness Inc.

This 16-acre property comprises 145,000 square feet of industrial space in Ocala. AYR plans to redevelop a building on the property into a regulated cannabis cultivation facility encompassing 98,000 square feet of industrial space. IIPR has agreed to reimburse up to $30.0 million for this project. Considering the full reimbursement for construction, IIPR’s total investment in the property is estimated to be $43.0 million (excluding transaction costs).

The expansion of the long-term real estate partnership with AYR is a strategic fit. Particularly, AYR is a leading, vertically integrated cannabis operator in the United States. It operates in eight states with 18 production facilities and 91 dispensary locations. In Florida itself, excluding this property, AYR operates 64 dispensary locations, with 745,000 square feet of existing production capacity.

The expansion of its footprint in Florida specifically makes sense owing to its growth potential. Florida represents the largest medical-use cannabis market in the United States, with the program receiving 71% voter approval in 2019.

With more than 880,000 qualified patients and above 2,300 qualified physicians in the medical-use cannabis program as of May 31, 2024, per the Florida Office of Medical Marijuana Use, and the BDSA reporting 2023 regulated sales of $2.6 billion, this asset buyout seems a prudent decision. Moreover, Floridians are set to vote on the adult-use legalization of cannabis in November 2024, which requires 60% approval to pass.

The legalization of marijuana for medical use across several U.S. states and recreational use in several states has opened opportunities for the cannabis industry. Therefore, 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 existing, redeveloped and under-development industrial buildings, including enclosed greenhouse facilities.

Innovative Industrial’s expansion efforts over the years have boosted the company’s footprint to 108 properties with 9.0 million square feet (including 722,000 rentable square feet under development/redevelopment). These properties are located across several states in the nation.

Over the past three months, shares of this Zacks Rank #2 (Buy) company have risen 7.9% against the 5.6% fall of the industry.

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Other Stocks to Consider

Some other top-ranked stocks from the REIT sector are American Tower AMT and Lamar Advertising LAMR, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for American Tower’s 2024 FFO per share is pegged at $10.39, which suggests 5.27% year-over-year growth.

The Zacks Consensus Estimate for Lamar Advertising’s 2024 FFO per share of $8.03 indicates a 7.5% increase year over year.

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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