New Lake Capital Companions NLCP, an actual property firm targeted on hashish properties, gives a horny funding with a 9.1% dividend yield, properly above the return on 10-year authorities bonds.
This yield, mixed with a cautious method to debt and disciplined portfolio progress, positions NLCP as a horny different to different hashish REITs like IIPR IIPR and broader industrial REITs. Buying and selling close to par worth, NLCP’s conservative technique highlights its potential for secure, long-term returns, as famous by Pablo Zuanic of Zuanic & Associates.
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Enticing Valuation And Dividend Yield
Considered one of NLCP’s standout options is its 9.1% dividend yield, which is nearly 500 foundation factors (bp) larger than 10-year Treasury payments—the benchmark for low-risk investments.
By comparability, IIPR gives a 6.7% dividend yield however trades at a 57% premium to guide worth, whereas NLCP trades at par, reflecting a extra conservative method to valuation.
Zuanic notes this discrepancy – partly resulting from IIPR’s NYSE itemizing versus NLCP’s OTC market standing -suggests NLCP could also be undervalued, with the potential for its valuation to extend as its market recognition grows.
The corporate’s dividend protection stands at 120%, demonstrating the sustainability of its payouts. NLCP’s rental yield is roughly 13%, which, in keeping with Zuanic, is notably larger than its debt price of 5.65%, making certain that it generates ample revenue to cowl its dividends.
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Prudent Portfolio Administration And Progress
NLCP operates with a low debt-to-equity ratio of lower than 2%, sustaining an unleveraged steadiness sheet. This technique underscores its cautious method to capital administration, significantly in an business liable to larger volatility.
As of September 2024, NLCP’s portfolio consists of 32 properties—together with 17 dispensaries and 15 cultivation amenities—unfold throughout 12 states. Zuanic famous these properties are absolutely rented, with a mean lease time period of 13.8 years, making certain long-term revenue stability.
The corporate has demonstrated progress, with a 4% improve in its actual property guide year-to-date, funded by $2.6 million in new investments in Q3 2024.
This progress price outpaces IIPR, which reported solely 2% progress over the identical interval.
Challenges With Tenants And Lease Amendments
Like all funding, NLCP has confronted challenges with just a few tenants. Revolutionary Clinics in Massachusetts and Calypso Enterprises in Pennsylvania have struggled with hire funds. The corporate has amended leases with these tenants and utilized escrow deposits to deal with hire shortfalls.
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Progress Outlook And Acquisition Technique
As leisure hashish markets increase in states like New York, New Jersey, Ohio, and Connecticut, NLCP is positioned for progress. Moreover, massive medical markets reminiscent of Pennsylvania and Virginia may transition to leisure gross sales throughout the subsequent two years, creating new progress alternatives.
In 2024, NLCP made a $4 million acquisition of a cultivation facility in Connecticut (C3 Industries), with $12 million dedicated to constructing enhancements. As of September 2024, the corporate has $21.2 million in construction-in-progress, primarily in Arizona and Connecticut, indicating continued growth of its portfolio.
Inventory Efficiency And Sector Comparability
Over the previous 90 days, NLCP’s inventory has been comparatively secure, down 3%, in comparison with the broader industrial REIT sector, which declined 13%.
NLCP trades at par, with a guide worth per share (BVPS) of $19.48 as of Q3 2024, properly under the 57% premium at which IIPR trades. In response to Zuanic, NLCP’s inventory is priced near its precise worth of $19.48 per share, whereas IIPR is buying and selling at a a lot larger value above its guide worth.
Regardless of this, NLCP’s superior dividend yield and low debt price make it a doubtlessly extra enticing funding for income-focused traders.
“5 operators (4 public) accounted for 65% of whole rental revenue as of 3Q24 (Curaleaf CURLF 23%; Cresco Labs CRLBF 14%; Trulieve TCNNF 11%; Cannabist 9%; C3 8%); this in contrast with 68% in 3Q23. At IIPR, 5 operators accounted for 50% of rental revenue in 3Q24 (PharmaCann 17%; Ascend Wellness AAWH 11%; Inexperienced Thumb Industries GTBIF 8%; Curaleaf 7%; Trulieve 7%),” Zuanic wrote.
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