New Lake Capital Partners National Archives of JapanThe company, which owns, operates or finances revenue-generating cannabis-centric real estate, has been gaining traction among investors, with its stock price up 11% over the past 90 days.
According to a senior analyst, the company’s financials and growth potential present a less volatile but promising opportunity for investors in the cannabis sector. Pablo Zuanic from Zuanic & Associates.
“With a favorable industry environment and strategic positioning, NLCP is well positioned to deliver above-average shareholder returns,” Zuanic said in a recent company report.
Portfolio expansion and financial soundness
NLCP recently announced a $16 million investment in Connecticut to acquire 58,500 square feet of industrial property for cannabis cultivation and manufacturing, a deal that represents a 4% growth in the company’s real estate book and signals confidence in the cannabis sector’s expansion.
“NLCP’s unlevered balance sheet and strategic investments limit downside risks and provide opportunities for growth,” Zuanic wrote.
The company’s portfolio is valued at $385 million and is concentrated in 31 properties owned by 13 operators.
Major players include Curaleaf curl The $87 million, or about 23% of the book, is spread across 10 leases in Connecticut, Florida, Illinois, North Dakota, Ohio and Pennsylvania. CRLBF One lease in Illinois for $44.6 million (about 11.5% of book value). Trulieve About TCNF Signed one lease in Pennsylvania which sold for $39.7 million (over 10% of the contract amount) and signed one lease in Massachusetts which sold Revolutionary Clinics for $39.5 million (over 10% of the contract amount).
Increased dividends and financial flexibility
NLCP’s commitment to shareholder returns is also evident in three consecutive dividend increases, the most recent of which was 43 cents for Q2 2024, a 10% increase from Q3 2023, and a yield of 8.6%, double the 10-year Treasury yield.
“The dividend is secured by the company’s strong cash balance and growth potential,” Zuanic said.
The company’s financial flexibility is further enhanced by a $50 million equity distribution agreement that will enable NLCP to sell shares directly to the market. The facility will enable NLCP to raise capital as needed without significant cost, positioning it well to better prepare for future industry reforms and market volatility.
Competitive valuation and growth prospects
NLCP trades at 9.6 times adjusted operating cash flow (AFFO) per share and 1 times book value, making it an attractive valuation compared with peers such as Innovative Industrial Properties. International Public RelationsIt trades at 12.2 times AFFO and 1.6 times book value.
This means NLCP is generating strong cash flows relative to its share price, making it a more efficient and potentially undervalued investment compared to its peers. AFFO, adjusted for recurring capital expenditures and other expenses, is a key metric for assessing a REIT’s profitability and sustainability, and trading at a lower multiple indicates a more attractive valuation for investors.
“NLCP’s valuation metrics and low debt-to-equity ratio make the company an attractive investment,” Zuanic said.
Other companies in the portfolio include Pennsylvania’s Calypso Enterprises ($30.3 million, about 8% of book value) and Columbia Care. Canada Air Wellness invested $29.3 million, or about 8% of book value, in five leases in California, Illinois and Massachusetts. AYRWF Nevada and Pennsylvania accounted for $26.7 million, or about 7% of the book value, while Bloom Medicinal Wellness accounted for $25.1 million in Missouri, or about 6.5% of the book value.
Cannabis rescheduling seems like it’s just around the corner. Want to find out what this means for the future of the industry? Hear directly from top executives, investors and policymakers at the 19th annual Benzinga Cannabis Capital Conference in Chicago, October 8-9. Get your tickets now before prices soar This link.
Photo: AI-generated imagery.
