Undervalued Pot REIT Reports Another Strong Quarter, Raises Dividend

Why the NLCP stock is compelling

The continued sale of cannabis stocks has been widespread. Even the big pot stocks have been beaten, which means that some of them are currently trading at a deep discount. One of the most intriguing marijuana stocks these days is NewLake Capital Partners Inc. (OTCMKTS: NLCP).

NewLake Capital is a real estate investment trust (REIT) focused on providing capital to state-licensed cannabis operators through sale-leaseback transactions, third-party purchases and project financing on measure.

Many investors aren’t familiar with NewLake Capital because it only went public about a year ago (and the past year hasn’t been kind to stocks, especially cannabis stocks).

Despite NewLake Capital Partners Inc reporting strong financial results, having the strongest pipeline in its history and paying growing high-yield dividends, NewLake Capital shares have taken a beating.

As of this writing, NLCP stock is down:

  • 10% on last month
  • 21% in the last three months
  • 30% in the last six months
  • 43% since the beginning of the year
  • 45% year over year

This downward trend doesn’t quite match what’s happening at NewLake Capital Partners Inc. In fact, it shows that NewLake Capital shares are simply following the same trajectory as the rest of the cannabis stock market. This too should pass. When what will happen is anyone’s guess.

For NewLake Capital Partners Inc, it doesn’t matter when recreational cannabis becomes federally legal in the United States because cash-strapped cannabis companies need the money. now to grow their businesses.

Not all traditional banks will do business with all types of marijuana businesses. And once pot becomes federally legal in the United States, REITs with first-mover advantages and strong relationships with major cannabis companies will do better than those who arrive late to the party.

I think NewLake Capital Partners Inc investors should be among the biggest winners in the stock market. NLCP stock even has great short-term potential. Analysts’ 12-month average price target for the stock is $29.50, indicating around 85% upside potential.

Chart reproduced courtesy of StockCharts.com

About NewLake Capital Partners Inc.

NewLake Capital provides capital to state-licensed cannabis operators through sale-leaseback real estate transactions, third-party purchases, and financing for custom construction projects. (Source: “Investor Presentation: September 2022”, NewLake Capital Partners Inc, last accessed September 22, 2022.)

The REIT’s real estate portfolio consists of 31 properties covering 1.7 million square feet in 12 states. The portfolio consists of 92% cultivation facilities and 8% retail outlets.

NewLake Capital Partners Inc. properties are leased to single tenants on a long-term triple net basis, which means tenants are responsible for the ongoing expenses of the properties (in addition to rent). The leases include rent escalations of two to three percent.

The properties are currently 100% leased and, thanks to the shrewd underwriting skills of NewLake Capital Partners Inc, the company has collected 100% of its due rents, with no abatement or deferral, since its inception in 2019. The weighted average lease term is 14.5 months. years, with a weighted average return of 12%.

The majority (65%) of NewLake Capital Partners Inc.’s tenants are publicly traded companies. Three of the REIT’s tenants are Curaleaf Holdings Inc (CNSX: ARUC, OTCMKTS: CURLF), Cresco Labs Inc. (CNSX: CL, OTCMKTS: CRLBF), and Trulieve Cannabis Corporation (CNSX: TRUL, OTCMKTS: TCNNF).

Second Quarter Revenue Up 59% Year-over-Year; AFFO up 78%

For the second quarter ended June 30, NewLake Capital reported that its total revenue increased 59% year-over-year and 3% sequentially to $10.5 million. (Source: “NewLake Capital Partners Reports Second Quarter 2022 Financial Results“, NewLake Capital Partners Inc, August 10, 2022.)

The company’s second quarter 2022 net income was $3.8 million, or $0.18 per share, up from second quarter 2021 net income of $2.7 million, or $0.16 $ per share.

NewLake Capital Partners Inc’s funds from operations (FFO) in the second quarter were $6.5 million, or $0.30 per share, compared to $4.9 million, or $0.27 per share, at the same period of the previous year. This is an increase in FFO of 37% year over year.

The REIT’s adjusted FFO (AFFO) in the second quarter of 2022 was $8.7 million, or $0.40 per diluted share, compared to $4.9 million, or $0.28 in the second quarter of 2021. This is a 78% increase in AFFOs year over year.

NewLake Capital Partners Inc ended the second quarter with $49.6 million in cash, of which $12.2 million was committed to fund tenant improvements. At that time, the company had only $3.0 million in debt.

Subsequent to the end of the second quarter, NewLake Capital announced that it had successfully increased its credit facility from $30.0 million to $90.0 million. This will allow the REIT to continue to invest in high quality assets.

NewLake Capital Stock’s Dividend Increases for the 5th consecutive quarter

NewLake Capital Partners Inc’s strong cash generation has helped it not only provide investors with high-yield dividends, but grow those dividends for five consecutive quarters.

On June 15, management declared a dividend of $0.35 per share for the second quarter, for an anti-inflationary yield of 8.5%. The new amount represents a 6% increase from the $0.33 per share NewLake Capital reported in the first quarter of 2022 and a 191% increase from the $0.12 per share it paid in the first quarter of 2022. quarter of September 2021.

analyst’s grip

NewLake Capital Partners Inc is an overlooked banker and owner of the cannabis industry. NCLP’s stock price took a hit, but that had nothing to do with what the company did.

NewLake Capital has a strong balance sheet, and the company’s size and first mover advantage positions it for long-term success.

The REIT’s high-quality real estate portfolio provides it with above-market returns. In addition, the company’s anchoring in a high-growth sector with a significant demand for capital should allow it to significantly increase its AFFO and its dividends.

Sallie R. Loera