Innovative Industrial Properties, Inc. IIPR, a leading real estate investment trust (REIT) specializing in the acquisition, ownership and management of specialized properties leased to experienced, state-licensed operators for their regulated cannabis facilities, is set to announce its fourth-quarter and full-year 2024 earnings results on Feb. 19, after market close. 

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In the last reported quarter, Innovative Industrial reported adjusted funds from operations (FFO) per share of $2.25, which missed the Zacks Consensus Estimate of $2.29. Results reflected lower-than-expected revenues.

Over the last four quarters, IIPR’s adjusted FFO per share surpassed the consensus mark on two occasions for as many misses, with the average beat being 0.02%. The graph below depicts the surprise history of the company:

Innovative Industrial Properties, Inc. Price and EPS Surprise

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

Innovative Industrial grabbed much attention in December as the company announced that PharmaCann, one of the nation’s largest vertically integrated cannabis companies that accounts for 17% of IIPR’s rental revenues, defaulted on its obligations to pay rent for December under six of the 11 leases. The properties are located in Illinois, Massachusetts, Michigan, New York, Ohio and Pennsylvania. For these six properties, December rent totaled $4.2 million. 

While rent was paid in full under the remaining five leases, aggregating $90,000 for December, the cross-default provisions included in each of the leases triggered a default on its obligations on the remaining five leases. IIPR utilized the security deposits associated with these leases to fully cover the defaulted rent, along with applicable late fees and interest. 

Later in January, IIPR announced that it reached an agreement with PharmaCann Inc. and its affiliates for resolving existing defaults under leases for 11 properties. This included full utilization of security deposits held by it under all leases for the payment in full for December 2024 and January 2025 defaulted rent and certain penalties. Also, it comprised amendments for nine properties in New York, Illinois, Pennsylvania, Ohio and Colorado, reducing cumulative total base rent from $2.8 million to $2.6 million per month, commencing Feb. 1, 2025.

IIPR: Factors at Play and Projections

In the fourth quarter of 2024, IIPR results are likely to be affected by a decline in contractual rent and property management fees received related to properties that IIPR took back possession of since the prior year. Moreover, continued inflation in input and labor costs is likely to have affected expenses in the quarter under consideration. This, along with pressure on pricing, is likely to have hampered profitability to some extent. 

However, an increase in contractual rent and property management fees, mainly due to contractual rent escalations and amendments to leases for additional improvement allowances at existing properties, is expected to have partially offset the negatives.

The Zacks Consensus Estimate for quarterly revenues is currently pegged at $76.68 million. The figure suggests a decline of 3.14% year over year.

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 remained unchanged over the past month at $2.22. Also, it suggests a 2.6% decrease year over year.

For the full year, the Zacks Consensus Estimate for FFO per share has remained unrevised in the past two months at $8.97. The figure indicates a 1.21% decrease year over year on revenues of $308.5 billion.

Here is What Our Quantitative Model Predicts for IIPR:

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.

Stocks That Warrant a Look

Here are two stocks from the broader REIT sector — Park Hotels & Resorts PK and Ryman Hospitality Properties RHP — that you may want to consider, as our model shows that these have the right combination of elements to report a surprise this quarter.

Park Hotels is slated to report quarterly numbers on Feb. 19. PK has an Earnings ESP of +10.69% and carries a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ryman Hospitality, scheduled to report quarterly numbers on Feb. 20, has an Earnings ESP of +4.91% 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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