Innovative Industrial Properties downgraded due to JMP concerns over tenant issues (NYSE:IIPR)

JMP analyst Aaron Hecht on Friday downgraded Innovative Industrial Properties (NYSE:IIPR) shares to Market Performance from Market Better after the company released a business update reflecting “operator issues appear to be increasing.”

Investors to be Disappointed with the update – that indicates lower rent collection and tenant problems – as the stock falls almost 20% on the news. IIPR slip 0.4% in premarket transactions.

Hecht is primarily concerned that the company “appears to be battling two of its larger tenants, Parallel and Green Peak Industries (12.6% of the company’s equity) over rent structure,” he said. he wrote in a note.

Additionally, the release highlighted five operators that are “insolvent, delayed, or seeking restructuring.” On a worrisome note, 25% of IIPR’s investment consists of the operators featured in the release.

That said, Hecht thinks it will take time to fully resolve the operator issues, potentially sending the company’s stock soaring. IIPR not working 6.3% from the beginning of the year to now and decreased almost 54% Y/Y.

The analyst also lowered his 2022 FFO estimate to $7.62 from $7.76, compared with the consensus of $7.73. For 2023, he sees an FFO of $7.68 versus $8.14 in consensus and $8.36 in the previous estimate.

Prior to that, Seeking Alpha contributor Dane Bowler marked the IIPR as Strong Sell because he expected more rent trouble for the company down the road.