The growth IIPR has achieved in such a short period of time is impressive by any standards. But it's not just stellar returns and share price growth that make this company special. There are a number of contributing factors that set this REIT apart from the rest. Here's why I plan to hold IIPR for the long haul.
Strategic business model poised for continued growth
The medical marijuana industry has grown tremendously over the past decade, but there's a lot of room to grow. Right now, 36 U.S. states have legalized marijuana for medical use. In 2020, mariujana sales increased 52%, reaching a record high of $20.1 billion for the year. However, some experts predict this number could increase twofold, predicting all 50 states will legalize medical marijuana by 2025, pushing sales to an estimated $46 billion. That means companies like IIPR are well-positioned to profit from this continued growth.
Right now, the company owns 73 facilities in 18 of the 36 states approved for medical marijuana, meaning there is opportunity for expansion into new territories. In Q2 2021, the company acquired five new facilities in Illinois, Massachusetts, Michigan and Pennsylvania, and it closed on a development loan for the construction of a processing facility in California.
IIPR's business model is unique in that it isn't focused exclusively on new development and triple net leasing but also utilizes sale-leasebacks. This program allows the company to purchase existing properties with established tenants and operating facilities, leasing the property back to the tenant and providing an influx of capital to the tenant to expand or improve its facilities or operations, which also provides IIPR with long-term cash flow. The company's portfolio is 100% leased, with an average remaining lease term of 16.7 years.
Strong financials and great leadership
Outside of its growth potential in a rapidly expanding market, IIPR is in a super-solid financial position, backed by strong leadership. Year-over-year revenues increased 101%, net income grew 124%, and adjusted funds from operations (AFFO) rose 104% as of Q2 2021. And it's not this one stellar quarter -- the company's performance consistently sees double-digit growth, which has allowed it to increase dividends 133% over the past two years.
IIPR is in a great position when looking at its cash, assets, and debt. As of Q2 2021, the company had a 21% debt-to-asset ratio, with no secured debt obligations, and $805.7 million in cash and cash equivalents. During the quarter, the company issued $300 million in unsecured senior notes in a private placement, which produced net proceeds of $293 million, bearing an interest rate of 5.50% per annum, which will mature in mid-2026. The capital will be used to invest in additional properties and help the company continue to grow its portfolio.
The Millionacres bottom line
The saying "never say never" exists for a reason. There is always the chance that the tables turn and at one point in the future, it will make sense to sell IIPR. There are risks for the company, primarily with competition (right now, in the private REIT market) and future regulatory changes.
It's important for investors to weigh these risks and remember that just because a company is performing well today doesn't mean it will be 20 or 30 years from now. But right now, for me personally, it's the REIT that keeps on giving, which is exactly why I don't plan to sell my shares in this company anytime soon.