Zuanic & Associates’ latest report, which initiates coverage of New Lake Capital Partners (OTC: NLCP) with an Overweight rating explains their motivation. “As of the third quarter of 2023, its net real estate assets were valued at $375 million, a significant increase from $124 million in 2020.”
NLCP is one of only two publicly traded sale-leaseback stocks providing capital to the cannabis sector.
NLCP’s niche positioning gains significance as the cannabis industry expands and contends with a capital supply-demand gap due to regulatory hurdles and federal illegality in the U.S., offering favorable economics for capital providers like NLCP.
Financial Performance And Growth
While NLCP has amassed $427 million in committed capital across 31 properties in 12 states, senior analyst Pablo Zuanic points out that the company has encountered challenges over the past year, resulting in stagnant adjusted funds from operations (AFFO) per share.
To navigate these challenges, NLCP has bought back over $9 million in stock, with further authorization for stock buybacks through December 2024.
Dividends And Valuation
NLCP offers a 12% dividend yield and currently trades at a 30% discount to its net asset value (NAV). This discount is considered unwarranted, particularly when compared to its peers, such as IIPR (NASDAQ: IIPR), which trades at a 22% premium to NAV.
“It’s important to note that part of this discount can be attributed to its OTC status and lower liquidity. Additionally, the stock is relatively new compared to its NYSE-listed peer, IIPR. However, we believe that the discount to non-cannabis industrial peers is significant and unjustified,” Zuanic wrote.
“Notably, IIPR is trading at a 22% premium to NAV, and the cannabis mREIT (NASDAQ: REFI) is trading at par. We identify four key factors that are expected to drive above-average returns for NLCP shareholders.”
According to Zuanic, these factors include its high dividend yield, projected AFFO growth, narrowing of the discount to NAV, and a potential rally in the REIT sector in the second half of 2024 as Federal Reserve rates begin to decrease.
Portfolio Composition
The portfolio primarily consists of well-established companies with above-average economic performance. Notably, several of these companies are publicly listed and
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