This stock will get punished next year when the portfolio is revalued. The numbers are pretty simple.
Portfolio Cap Rate - 4.91%
Portfolio Value - $1.15B
Market Cap - $1.65B
Premium to Book Value - $500M (43%)
Why would you buy a stock that is trading at 43% above book value in an environment where cap rates are softening. Irrespective of the strong lease terms ARF have with their tenants, the commercial property sector is going to experience a broad market readjustment in values driven by capital costs.
Within a 12mth period we will see the cash rate move 200-300bps, this will flow through to the commercial property sector and cap rates will adjust accordingly. If ARF experiences a mere 100bps adjustment to their portfolio, this will wipe out 20% of its book value ($250M).
This is not a stock that I would be long on. Just remember there is a 6-12mth lag with RE so don't get to excited by the recent uplifts the company is disclosing, profits can just as quickly adjust to losses when a portfolio is revalued.
Just my thoughts.
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