REITs on the Downslope?

Only four REIT deals closed in Q3 2022.

Real estate investment trust deals (REITs) have been a hot financing tool for several years now in the U.S. cannabis trade, as companies ramped up expansion plans and were looking high and low for access to capital.

But the REIT trend appears to be cooling down, according to data from Cannabiz Media. In the third quarter of last year, just four deals were solidified for a total value of $90 million, down from a high of nine deals worth $305 million in the fourth quarter of 2019.

Still, that quarterly performance is historically solid, given that REITs are a fairly new phenomenon in the industry, having only really taken off about four years ago.

For the first three quarters of last year, REIT deals in cannabis hit a total value of $362 million, compared to $585 million for all of 2021, $318 million for 2020, and $403 million in 2019.

In 2018, before the financing niche took off, REIT deals were worth just $57 million.

The firms engaging in REIT deals are also apparently shifting, according to the Cannabiz Media data.

While the space was once dominated by Innovative Industrial Properties (Nasdaq: IIPR) – which made headlines with sale-leaseback real estate deals for many major multistate operators such as Cresco Labs – the third quarter last year didn’t feature a single deal by IIPR. Rather, the four transactions recorded in the quarter were one apiece from:

  • Aventine Property Group
  • NewLake Capital Partners (OTCQX: CNBC)
  • Pelorus Equity Group
  • Power REIT (NYSE-American: PW)

As of six months ago, the sector was still expanding.

Hoya Capital over last summer wrote on Seeking Alpha that REITs “have delivered the strongest dividend growth over the past five years, averaging more than 20% per year. Cannabis REITs pay out roughly 85% of their available FFO, however, higher than the REIT sector average.”

But, Hoya warned even last July, REITs “have been unable to escape the cannabis industry’s downward pressure this year amid amplified concerns over tenant rent-paying-capacity.”

That means the health of REITs will fluctuate to a degree with the overall performance of the larger industry it serves, including amid ongoing uncertainty over federal U.S. cannabis reform, which has wreaked havoc with marijuana stocks and business plans over the past year.

John Schroyer


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