09-20-2018, 08:18 AM
(09-20-2018, 07:20 AM)divmenow Wrote: Its not over valued when you look at how much the industry is going to grow over the next 5 years. You know the market always looks ahead. You have to be in the space somehow and this is the safest place to get some exposure to the cannabis industry.
If you strictly look at P/B:
If you invest, say $300 into this, you are essentially getting $80 worth of real estate and $70 worth of cash. Now very likely, within the next year or two, all of that cash will be used and you're looking at roughly $150 worth of real estate, hopefully a bit more. You're still buying real estate at double the market price and a P/B of 2 is ridiculously high for a REIT. Usually I don't pay much attention to book value (as it's not the driving force behind the strategy of a company) but with property I do take it into account.
If you look at P/E, then I'd guess that after the cash has been deployed you're looking at about 20. Again, ridiculously high for a REIT.
Let's face it, as a REIT this company has some really high valuations. And that is what it is, a REIT, they own and rent out property.
The P/B you can't really fix unless the real estate magically starts to appreciate double digits every year. P/E can and probably will be fixed with time as the rents go higher. While we might view the cannabis industry as "growing" will it really lead to massive increases in the value of these properties? It won't have any immediate effect on the leases since they will go up at a predetermined amount (was 3.25% for some new deals).
I'll be grabbing some of this anyway as I see that the ffo, which translates to dividends, will increase nicely with the new acquisitions and the yearly increases in leases. And we are probably looking at some decent short term gains because that's how the market is looking at anything that has the word cannabis in it. However saying that "it's not overvalued because it's cannabis related" is kind of a stretch.