Jan. 3 at 2:58 PM
NewLake Capital Partners is a high-yield REIT where fundamentals are improving faster than the market is willing to price in.
The key catalyst is cannabis moving toward Schedule III status at the federal level.
Under Schedule I, operators were unable to deduct basic business expenses, resulting in effective tax rates of 60–80% and severely constrained profitability.
Reclassification allows normal deductions, which should lead to immediate improvements in free cash flow, balance sheets, and overall tenant credit quality.
That matters because tenant risk is the primary reason NLCP trades at such a deep discount.
Even after the recent rally, NLCP still trades at:
- 7.95x P/AFFO
- Price to book value of just 0.82, meaning the market is valuing the company at 18% less than the value of its net assets.
- 11.32% dividend yield
- 82% AFFO payout ratio, near the low end of management’s target range
- Net cash position, with more cash than debt
(see pic)
To be clear, NLCP has faced real challenges, including tenant restructurings and vacancies, which explains the depressed valuation.
However, those issues occurred under one of the most hostile operating environments cannabis companies have ever faced.
If tenant fundamentals improve as this policy shift suggests, the outlook for rent collection, re-leasing, and long-term cash flow stability improves materially.
$NLCP remains a riskier speculative REIT and should be sized appropriately.
But with an over 11% dividend yield and a conservative balance sheet, even without significant AFFO per share growth, total returns could look attractive.
