NewLake Capital Partners: 8.8% Yield And Growth Potential? It's A Must-Watch

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NewLake Capital Partners offers an attractive 8.8% yield, a reasonable valuation, and it can benefit from lower interest rates, making it a compelling growth stock in the cannabis REIT sector.NLCP's ...

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It's A Must-Watch","media":"seekingalpha","content":"<div>\n<p>NewLake Capital Partners offers an attractive 8.8% yield, a reasonable valuation, and it can benefit from lower interest rates, making it a compelling growth stock in the cannabis REIT sector.NLCP's ...</p>\n\n<a href=\"https://seekingalpha.com/article/4729753-newlake-capital-partners-8-8-percent-yield-and-growth-potential-its-a-must-watch\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>NewLake Capital Partners: 8.8% Yield And Growth Potential? 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It's A Must-Watch\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-26 04:55 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4729753-newlake-capital-partners-8-8-percent-yield-and-growth-potential-its-a-must-watch><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>NewLake Capital Partners offers an attractive 8.8% yield, a reasonable valuation, and it can benefit from lower interest rates, making it a compelling growth stock in the cannabis REIT sector.NLCP's ...</p>\n\n<a href=\"https://seekingalpha.com/article/4729753-newlake-capital-partners-8-8-percent-yield-and-growth-potential-its-a-must-watch\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4171","symbol_name":"工业房地产投资信托","start_time":0,"source_url":"https://seekingalpha.com/article/4729753-newlake-capital-partners-8-8-percent-yield-and-growth-potential-its-a-must-watch","article_id":"2478957189","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1403074050/image_1403074050.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2478957189","pubTimestamp":1729889737,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"NewLake Capital Partners offers an attractive 8.8% yield, a reasonable valuation, and it can benefit from lower interest rates, making it a compelling growth stock in the cannabis REIT sector.NLCP's b","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4171":"工业房地产投资信托","NLCP":"NewLake Capital Partners, Inc.","BK4224":"工业房地产信托"},"translate_title":"NewLake Capital Partners：8.8%的收益率和增长潜力？这是必看的","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"NLCP":0.9},"content_text":"NewLake Capital Partners offers an attractive 8.8% yield, a reasonable valuation, and it can benefit from lower interest rates, making it a compelling growth stock in the cannabis REIT sector.NLCP's business model involves long-term triple-net leases with cannabis companies, reducing risk and allowing it to charge premiums for rent due to limited financing alternatives.Tenant concentration is a risk to monitor. However, the company's largest tenant is cash-flow positive, easing some of the risks involved.The SAFER Banking Act presents some uncertainty. However, the negatives are balanced by the positives.The cannabis industry is set to grow at a double-digit CAGR, bolstering the bull case.Morsa Images NewLake Capital Partners (OTCQX:NLCP), a cannabis REIT, presents an intriguing opportunity. It's a growth stock that is yielding a juicy albeit relatively safe 8.8% and is trading at a reasonable valuation. Being a real estate company, it should also benefit from lower interest rates. It also has a history of reducing its share count, which isn't common among REITs. Although there's uncertainty, such as how the SAFER Banking Act will affect its operations, plus some concentration risk regarding its tenants, there are plenty of positives as well. After reviewing the pros and cons, I've decided to give NLCP stock a Buy rating, with the potential for me to re-rate it as a Strong Buy if it dips notably from here. NLCP's Excellent Business Model NewLake's business model is simple. It buys real estate like cultivation facilities and dispensaries and leases them back to cannabis companies via long-term triple-net leases. Triple-net leases reduce the risk for NLCP, as they mean that the cannabis operators are also responsible for taxes, insurance, and maintenance. And NLCP is able to charge premiums to these cannabis companies since there aren't many other financing alternatives due to the drug being illegal at a federal level. Innovative Industrial Properties (IIPR) is another company that does this, and AFC Gamma (AFCG) is similar as well, but still, there aren't many options. As a result, NLCP has a weighted-average yield of 11.9% on its leases with 2.6% annual rent escalations. On top of that, the weighted average lease term is 14 years. Not a bad business model, I must say. NLCP's Most Recent Investor Presentation NewLake Capital Is A Growth Stock With More Growth Ahead Over the past 2.5 years, NLCP's total revenues grew from $28.1 million in Fiscal 2021 to $49 million in the trailing 12 months. Its FFO and AFFO per share have also grown notably recently, as you can see below. NLCP's Most Recent Investor Presentation By the end of the year, its FFO is estimated to come in at $1.99 per share, which would represent a 9.3% growth rate. However, this is just based on the estimate of one analyst, but the cash flows of REITs are generally easy to predict, so this estimate shouldn't be so far off. Some Growth Drivers What will drive future growth? Well, the cannabis industry is expected to keep growing. The graphic below shows a projected 10.5% CAGR from 2022 to 2027. Cannabis Industry Projections (NLCP's Most Recent Investor Presentation) Additionally, interest rates are set to fall. Last month, the Fed cut rates by 50 basis points to a target range of 4.75-5%. By December 2025, rates are currently expected to be closer to 3.25-3.5% or 3.5-3.75%. If that happens, cannabis companies would be more willing to look for financing since it will be cheaper. Lower rates will also likely allow NLCP to raise debt at cheaper rates and expand the business. NewLake Capital Has Reduced Its Share Count Over The Years Oftentimes, REITs issue shares at a relatively low cost of equity and then use the money to invest in real estate with slightly higher yields. However, NLCP's management clearly knew that it shouldn't have diluted itself, especially when the share price was near $12-13, trading at a large discount to book value and carrying a hefty dividend yield. Instead, it bought back shares and reduced its share count, which is uncommon for REITs. This tells me that management knows how to allocate capital properly. Data by YCharts As of June 30, 2024, there was about $8.2 million left in its buyback program (about 2% of its current market cap), and I expect that management will put this program to use if the share price dips significantly again. It seems that management is prudent with its repurchases, as it stopped repurchasing after the share price rallied. This doesn't mean that the stock is overvalued. It just means management is cautious. SAFER Banking Act Brings Both Positives And Negatives I'm sure many of you know this, but just as a refresher, the SAFER Banking Act, which hasn't been fully passed yet, would remove penalties and restrictions on financial institutions that offer services to legal cannabis businesses. This will make it easier for cannabis firms to get loans and other traditional financial services. The main negative with this is that it can introduce more competition for NewLake as other financial institutions step in to offer financing. This will likely cause NewLake to not be able to charge as much for rent. However, that's not the full picture. First, NewLake has expertise in designing and financing specialized cannabis facilities relative to traditional financial companies, giving it a competitive advantage. Also, the Act (as well as falling interest rates) could lower NewLake's cost of capital as the industry will be perceived as less risky. This will make it cheaper to raise or borrow money. NLCP will then be able to offer cheaper rent and attract more clients. In essence, it'll be lower overall yield but an increase in loan quantity. The Act will also help cannabis companies save money, especially if it comes with lower rates overall, which can at least make their operations more stable and lower NLCP's risk. Nonetheless, as shown in the first screenshot above, the weighted average lease term is 14 years, so NLCP won't have to worry about its clients finding competitors any time soon. Thus, I'm not worried about the SAFER Banking Act at the moment. Tenant Concentration Is A Risk To Consider One thing that gives me pause is that Curaleaf (OTCPK:CURLF) (CURA:CA) made up 22.5% of annualized base rent, as of the most recent report. Cresco Labs (OTCQX:CRLBF) coming in at 13.1% is also high. It helps that Curaleaf has Q1-2024 adjusted EBITDA of $77 million and TTM free cash flow of about $64.5 million. Still, I'd like to see more diversification in the future without sacrificing quality, of course. It's important for investors to monitor Curaleaf's results from time to time to see if it is still maintaining its cash flows or at least a strong financial position. NLCP's Tenants (NLCP's Most Recent Investor Presentation) The Valuation Is Attractive Now that I've addressed the risks, let's get into the valuation. NLCP generated $2.03 in AFFO in the past 12 months, giving it a price/AFFO multiple of 9.65x. Also, the FFO estimate for 2024 stated earlier suggests a forward price/FFO of 9.9x. I believe these are attractive multiples, as they suggest FFO and AFFO yields above 10% for a company with solid growth potential. Additionally, its price/book ratio is 1.02x, and its price/tangible book ratio is 1.07x, meaning that you can currently buy the stock for close to its net worth. I think that's attractive because its book value should increase over the years through retained earnings and the positive affect lower interest rates should have on real estate prices. Further, the dividend yield of 8.8% is high but also relatively safe. The AFFO payout ratio is currently 82%, and since rent payments are predictable, 82% provides a good margin of safety. I don't think a dividend cut is on the radar. If anything, NLCP should be able to increase its dividend over time (by at least 2.6% per year, in line with rent escalations, but likely higher), as it has seen 79% growth in its dividend since its IPO. Lastly, if the share price were to fall considerably, per-share metrics could get a boost from potential buybacks as well. Earnings Are Coming Up On November 14 NewLake Capital Partners will reports its third-quarter earnings on November 14, 2024, which I assume will be before market open since the earnings call is scheduled for 11:00 a.m. ET. For Q3, the one analyst covering the stock expects FFO per share of $0.49, which translates to a YoY growth rate of 8.9%. I believe NLCP is likely to come in line with or beat this estimate rather than miss it, as FFO/share in Q1 and Q2 were both $0.50. Plus, NLCP has beaten estimates more often than not in recent quarters, as you can see below (note that in quarters where there is no bar at all, NLCP met expectations), which tells me that estimates have generally been too conservative. NLCP FFO Surprises (Seeking Alpha) Of course, if NLCP were to miss estimates greatly, then I'd have to find out why and re-evaluate, but as of right now, I'm not worried about the stock going into earnings. Additionally, there have been more positive reactions to earnings than negatives ones in the past, and generally, its reports don't come with huge post-earnings reactions (see below). I'm aware that past results don't indicate future performance, but it's still worth keeping in mind. NLCP Stock Earnings Reactions (TipRanks) The Takeaway NLCP stock presents an attractive way to gain exposure to the growing cannabis industry. While you wait for the industry to grow, you'll receive an 8.8%-yielding dividend that looks safe and is likely to keep growing. I recognize that there is uncertainty regarding the SAFER Banking Act, but I think there are positives as well that cancel out the negatives. Tenant concentration is another risk to consider, and I hope the company will become less concentrated in the future. Nevertheless, NLCP's largest tenant, Curaleaf, has positive adjusted EBITDA and FCF, easing some of my worries. Earnings are coming up on November 14, and it'll be interesting to see if the company beats estimates, as it has mostly done in the recent past. Nonetheless, I don't have any real worries going into the earnings report. That's because, overall, the valuation is low, the dividend yield is high, and NLCP can benefit from lower interest rates in the next year or so. Therefore, I rate NLCP stock as a Buy.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2478957189"}