Factors to Impact Innovative Industrial's (IIPR) Q4 Earnings - February 24, 2023

February 24, 2023

Innovative Industrial Properties, Inc. (IIPR - Free Report) is expected to report fourth-quarter and full-year 2022 results on Feb 27 after market close. The company’s quarterly results are likely to display year-over-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 2.90% in terms of adjusted FFO per share.

Over the last four quarters, IIPR’s adjusted FFO per share surpassed the consensus mark, with the average beat being 3.78%. The graph below depicts the surprise history of the company:

Let’s see how things have shaped up before the earnings release.

Factors at Play

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

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. Thus, IIPR 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.

This REIT’s expansion efforts resulted in the company owning 110 properties located in 19 states, representing a total of 8.7 million rentable square feet, including 1.9 million rentable square feet under development/redevelopment. IIPR is anticipated to have benefited from its expansion measures during the quarter under review on contributions from acquisitions.

The leasing of new properties, additional building infrastructure allowances provided to tenants at certain properties resulting in adjustments to the base rent and contractual rental escalations at certain properties are likely to have benefited IIPR.

Rent collection for IIPR’s operating portfolio included 94% collections for the fourth quarter (including roughly $541,000 of security deposits applied for the payment of the rent for IIPR’s lease with Sozo).

The Zacks Consensus Estimate for quarterly revenues is currently pegged at $68.6 million. The figure suggests a rise of 16.4% year over year.

However, inflation, supply-chain issues and labor shortages are likely to have affected expenses in the quarter under consideration.

Innovative Industrial Properties’ activities during the quarter in discussion were inadequate to gain analysts’ confidence. The Zacks Consensus Estimate for the fourth-quarter FFO per share has been revised 3.9% downward in the past month. However, it calls for 5.41% year-over-year growth.

For the full year, the Zacks Consensus Estimate for the FFO per share is pegged at $8.27. The figure indicates a 24.17% increase year over year on 34.2% year-over-year growth in revenues to $274.5 million.

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 an FFO beat. However, that’s not the case here.

Innovative Industrial Properties currently carries a Zacks Rank of 4 (Sell) and has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Performance of Other REITs

Public Storage (PSA - Free Report) reported a fourth-quarter 2022 core FFO per share of $4.16, increasing 17.5% year over year. The figure surpassed the Zacks Consensus Estimate of $3.99. Public Storage’s results reflected better-than-anticipated top-line growth, aided by an improvement in the realized annual rent per occupied square foot. PSA also benefited from its expansion efforts through acquisitions, developments and extensions.

Extra Space Storage Inc. (EXR - Free Report) reported a fourth-quarter 2022 core FFO per share of $2.09, beating the Zacks Consensus Estimate of $2.08. The figure was also 9.4% higher than the prior-year quarter’s $1.91. Extra Space Storage’s results reflected better-than-anticipated top-line growth. EXR experienced higher average rates for existing customers and a rise in other operating income, partly offset by lower occupancy.

Stock to Consider

Here is a stock from the broader REIT sector — Postal Realty Trust, Inc. (PSTL - Free Report) — that you may want to consider as our model shows that this has the right combination of elements to report a surprise this quarter.

Postal Realty Trust, slated to release quarterly numbers on Mar 1, has an Earnings ESP of +1.35% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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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