3min chapter

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NewLake Capital, IIPR and cannabis REITs

Investing Experts

CHAPTER

Introduction

This chapter delves into the world of cannabis real estate investment trusts (REITs), analyzing dividend yields, valuations, and risk factors, with a focus on specific REITs like UA Capital. The discussion highlights the evolution of strategies, the crucial aspects of capital deployment and shareholder value, and evaluates market dynamics and growth prospects.

00:00
Speaker 3
Jerry, Darah Vianni and Julian Lin. Always great to talk to you individually. Excited
Speaker 2
about this conjoining effort. I did have a question for Julian. Absolutely. We've kind of debated some of the the REITs and some of the debt providers probably going to try to debt providers in this space. Do you have a current view on what their dividend yields look like and how you're looking at that at those opportunities?
Speaker 1
Yeah, I think the main one we were talking about before was the UA capital. Definitely now it's trading at around an 8% dividend yield. I would say from a valuation perspective, it's still interesting, right? Especially when you have the traditional REITs trading more around the 5.5% range. But definitely going to be way less compelling than we were talking before. I think we were talking before it was at a 12% yield. One of the interesting points back then was it was so cheap that they could have wrote down their assets, but was it like 50% and shareholders would still be still be good on the money. Those kind of dynamics are not quite the same now. That interesting thing with these kind of REITs, these net lease REITs, especially in capital, as their valuations expand, the risk that the risk facing them change. It's not quite there yet, but when IIPR was trading at a 1% to 2% yield, a big risk was ironically just legalization and this idea that more capital could flow into the sector. Just because that will stop their growth. But when it's stopped, even if it's trading at 8% yield, slowing growth probably is not really that advantage of an issue, just because that yield was already high enough. But what I could say about the capital is definitely a team to look at. Just look at how they executed the last many quarters. You don't typically see even outside the cannabis sector with REITs, you don't typically see these ban-print teams do what they did and that their stock was low. What the capital did was instead of just buying more investments at the same valuation as their stock, they were buying back stock at a 12%, 10%, 11% yield. They initially were resistant, but at some point they started doing that and then they got more and more into it. That's just incredible. You get this team that they focus on being very lean. They are generating this 80% actual cash flow margins that are not adjusted by inventory or whatever. Then they were just deploying all excess capital to share repurchases instead of trying to grow the business. That's exactly what you want to see a company do when their stock is really cheap. The short interest here question would be, obviously, the opinion is going to change as the valuation goes higher.
Speaker 2
That's interesting.

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