Core Viewpoint - Innovative Industrial Properties (IIPR) is facing significant challenges with tenant defaults and declining rental revenues, leading to a bearish outlook on its common stock, while the preferred Series A (IIPR-A) is now viewed as an attractive investment opportunity due to its discounted valuation and strong coverage [2][3][5][24]. Financial Performance - For the three months ended March 31, 2025, IIPR reported a net income attributable to common stockholders of $1.03 per share, down 24% from $1.36 in the previous year [3]. - Normalized Funds from Operations (FFO) decreased by 7% to $1.84 per share, while Adjusted Funds from Operations (AFFO) fell by 12% to $1.94 per share [3]. - Total revenues for the same period were $71.72 million, with property revenues of $71.69 million and preferred stock dividends amounting to $781,000 [22][23]. Tenant Issues - IIPR has experienced multiple lease defaults, including a $2.7 million default by PharmaCann and a total of $13.1 million owed from other tenants, which has contributed to a broader tenant replacement initiative [18][19]. - The company is selling impaired properties, such as a property in Palm Springs for $2 million, recognizing an impairment loss of $3.5 million [19][20]. Preferred Stock Analysis - IIPR-A is currently trading at $23.87, down from a previous high of $31.98, presenting a potential capital appreciation opportunity if redeemed at its liquidation preference of $25 [5][9]. - The current yield on IIPR-A is approximately 9.43%, with an additional 4.82% upside to par, making it a strong investment option compared to other preferred stocks [7][9]. - The preferred stock is well-covered by the company's asset ratios, with total assets of $2.35 billion against liabilities of $430 million, ensuring sufficient cash flow to cover preferred dividends [14][24]. Market Conditions - The market price of IIPR has declined significantly, trading at a 9X forward AFFO multiple, which raises concerns about future tenant difficulties and potential mark-to-market declines [3][10]. - The company's ability to redeem the preferred stock is tied to its cost of equity capital, which is currently around 11%, making near-term redemption unlikely unless market conditions improve [10][11]. Conclusion - Despite the challenges faced by IIPR in its common stock, the preferred Series A presents a compelling investment opportunity due to its high yield, strong coverage, and potential for capital appreciation, provided the company can maintain sufficient cash flows to support its obligations [24][25].

Group 1 - The article discusses a shift in investment strategy towards REIT preferred stocks due to improved spreads, which have become more reasonable recently [1] - The investing group Trade With Beta offers features such as frequent picks for mispriced preferred stocks, weekly reviews of over 1200 equities, IPO previews, and hedging strategies [1] - The analyst has a beneficial long position in REGCP and REGCO shares, indicating a personal investment interest in these stocks [1]