New Lake Capital Partners NLCP, which owns, operates or finances income-producing cannabis-focused real estate, is gaining traction among investors, evidenced by an 11% rise in stock price over the past 90 days.
The company’s financial health and growth potential present a less volatile yet promising opportunity for investors in the cannabis sector, according to senior analyst Pablo Zuanic from Zuanic & Associates.
In a recent company update Zuanic noted: “With a favorable industry backdrop and strategic positioning, NLCP is well-equipped to deliver above-average shareholder returns.”
Portfolio Expansion And Financial Health
NLCP recently announced a $16 million investment in Connecticut, acquiring a 58.5k sq ft industrial property for cannabis cultivation and manufacturing. This transaction, representing 4% growth of its real estate book, signals confidence in the cannabis sector’s expansion.
“NLCP’s unlevered balance sheet and strategic investments limit downside risks and provide growth opportunities,” Zuanic wrote.
The company’s portfolio, valued at $385 million, is concentrated in 31 properties with 13 operators.
Key players include Curaleaf CURLF with $87 million (~23% of the book) spread across 10 leases in Connecticut, Florida, Illinois, North Dakota, Ohio, and Pennsylvania; Cresco Labs CRLBF at $44.6 million (~11.5% of the book) with one lease in Illinois; Trulieve TCNNF at $39.7 million (>10% of the book) with one lease in Pennsylvania; and Revolutionary Clinics at $39.5 million (>10% of the book) with one lease in Massachussetts.
Dividend Growth And Financial Flexibility
NLCP’s commitment to shareholder returns is evident with its third consecutive dividend increase. The recent 43c dividend for 2Q24, a 10% hike from 3Q23, yields 8.6%, double the 10-year Treasury yield.
“The dividend is secured by the company’s strong cash position and growth potential,” Zuanic said.
The $50 million equity distribution agreement, which allows NLCP to sell shares directly into the market, further strengthens the company’s financial flexibility. This facility enables NLCP to raise capital as needed, without significant costs, positioning it well for future sector reforms and market fluctuations.
Competitive Valuation And Growth Prospects
NLCP trades at 9.6 times its adjusted funds from operations (AFFO) per share and 1 times its book value, attractive compared to peers like Innovative Industrial Properties IIPR, which trades at 12.2 times AFFO and 1.6 times book value.
This means NLCP generates strong cash flow relative to its share price, making it a more efficient and potentially undervalued investment compared to peers. AFFO, which adjusts for recurring capital expenditures and other expenses, is a key metric for evaluating the profitability and sustainability of REITs, and trading at lower multiples indicates a more attractive valuation for investors.
“NLCP’s valuation metrics and low debt-to-equity ratio make it a compelling investment,” Zuanic said.
Additional companies in the portfolio include Calypso Enterprises with $30.3 million (~8% of the book) in Pennsylvania; Columbia Care CCHWF with $29.3 million (~8% of the book) across five leases in California, Illinois, and Massachusetts; Ayr Wellness AYRWF with $26.7 million (~7% of the book) in Nevada and Pennsylvania; and Bloom Medicinal Wellness with $25.1 million (~6.5% of the book) in Missouri.
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