The market for cannabis REITs is heating up. Innovative Industrial Properties or IIP (IIPR) was the first to stake its claim in the market and continues to be an industry leader. It's success in the space has spawned a new group of REITs that are hoping to have the same winning strategy.
One of the main reasons REITs have proven to work in the cannabis industry is that banks don't want to lend money to a cannabis company when it is looking for a building. Whether its brick and mortar retail or an industrial building for cultivation, banks continue to avoid cannabis companies. The product is still federally illegal and that is a bridge too far for mainstream banks to cross. That means most companies have had to own the real estate outright.
It was no problem raising capital to buy real estate as investors liked the idea of owning a physical asset and money was easy. However once capital tightened and cannabis companies still had bills to pay, monetizing the assets was a no brainer. In stepped IIP to buy the buildings and then lease them back to the original owners, many of whom had sunk millions in the assets to make them cannabis friendly.
IIP lately paid a dividend $1.17 per share of common stock, representing an approximate 10% increase over IIP's second quarter 2020 dividend of $1.06 per share of common stock, and a 50% increase over IIP's third quarter 2019 dividend of $0.78 per share of common stock. The dividend is equivalent to an annualized dividend of $4.68 per common share, and is the eighth dividend increase since IIP completed its initial public offering in December 2016. In addition to the dividend, the share price was recently selling at $113, a massive move from the company's 52-week low of $40.21.
The company owns 61 properties in 16 states and 99% of that is leased. IIP has $1 billion of invested capital. Its annualized second quarter 2020 revenue is $97 million.
This week the Subversive Real Estate Acquisition REIT LP (SBVRF) announced that the REIT LP would begin trading on the OTCQX Best Market under the symbol "SBVRF" The REIT LP also trades on the Neo Exchange Inc. in Canada under the symbols "SVX.U" and "SVX.RT.U." The company owns 17 properties in nine states with 98% occupancy. The portfolio is valued at $201 million and the majority of properties are in California and Florida. Subversive says it has a pipeline of 40 properties worth $500 million and an incremental asset yield of 11.2%
"We believe that the combination of growth and an estimated 6.5% yield offered by the REIT LP's initial portfolio of 15 industrial and retail assets, as well as our high-quality platform as the second cannabis REIT, will be attractive to investors worldwide," said the REIT LP's CEO Richard Acosta. Like IIP, Subversive will focus on sale-leasebacks and asset acquisitions.
Earlier this month Inception REIT entered into a merger agreement with Subversive which included two properties, one retail and one industrial, and one retail mortgage across Southern California in downtown Los Angeles, Desert Hot Springs and Coachella, with a combined square footage of 45,850 square feet. The merger was expected to close on October 30, 2020.
Two other cannabis REIT are still private companies but surely that's only a matter of time. In August, AFC Gamma Inc., completed a first close of its $200 million investment vehicle, having raised approximately $80 million of equity from over 20 large family offices. AFC Gamma has a credit line of up to $40 million, providing the REIT with approximately $120 million of capacity to lend to cannabis operators. AFC Gamma has funded or committed to approximately $115 million of loans to eight borrowers. The AFC stands for Advanced Flower Capital.
GreenAcreage benefits from a strategic relationship with Acreage Holdings. Acreage has provided GreenAcreage with an initial pipeline of properties for sale and leaseback and a right of first offer until May 31, 2022 for future real estate properties and development projects. The company completed a $141 million private placement last year and hasn't limited itself to just Acreage Holdings properties. It closed on a $50 million deal with Cresco Labs in 2019.
As cannabis stocks have taken shareholders on a roller coaster ride, the REITs look like they may be the safest place to go. The share price has held up and investors get a dividend to boot. If legalization efforts continue and the bank problem doesn't get resolved, there will continue to be a need for cannabis companies to use real estate as a way to fund their businesses.