The estimated intrinsic value of Innovative Industrial Properties, Inc. (IIPR) using a Price-to-Funds From Operations (P/FFO) model is $131.67 (based on the recommended P/FFO method), compared to the current stock price of $51.17. This suggests the stock may be undervalued by 157.3% relative to its intrinsic value.

For Real Estate Investment Trusts (REITs), standard DCF models can be misleading because depreciation — a large non-cash charge — distorts net income. Instead, SharesGrow uses a Price-to-FFO (Funds From Operations) model: Intrinsic Value = FFO Per Share × 17 (sector-average P/FFO multiple). FFO adds back depreciation to net income, providing a more accurate picture of a REIT's recurring cash-generating ability — the industry-standard metric for REIT valuation.

The valuation uses a CAPM-derived discount rate of 7.3% (CAPM-derived from beta of 1.47). For comparison, the standard 20-year DCF model produces: Operating Cash Flow (OCF): $222.84 | Free Cash Flow (FCF): $204.70 | Net Income (NI): $157.99.

• Operating Cash Flow (OCF) exceeds Net Income (NI) significantly. This is common with companies that have large Stock-Based Compensation (SBC) or depreciation charges. Our Discounted Cash Flow (DCF) model may be using a cash flow base that is higher than earnings, but the method choice matters — check the recommended method below.