REITs are a great way to get exposure to the real estate market without investing directly in real estate properties. And they also offer some unique perks, such as very high dividends compared to other stocks. That’s because REITs are legally required to give 90% of their taxable income back to investors in the form of dividends.
Below I discuss a few topics that I define here.
- Mortgage-Backed Securities: These are investment products similar to bonds that pool mortgages together and are bought from issuers like banks. Companies that invest in these securities receive income from periodic interest payments.
- Triple Net Lease: This is a legal agreement by which the tenant of the property fronts the cost of all expenses relating to said property, such as maintenance, insurance and taxes.
- Sale-Leaseback: A sale-leaseback means a company sells an asset, like real estate property, and leases it from the purchaser for an extended duration. That primarily happens when a company needs to raise capital quickly.
Here are 3 undervalued REITs to keep an eye on.
NewLake Capital Partners (NLCP)
NewLake Capital Partners (OTCMKTS:NLCP), located in New Canaan, Connecticut, is a capital provider for licensed cannabis-based businesses. It is a triple net leasing company that acquires properties through different methods, such as sale-leaseback transactions. Across 12 states, they own a total of 32 properties, used as cultivation and retail locations. The business provides real estate capital for companies such as Curaleaf (OTCMKTS:CURLF), Cresco Labs (OTCMKTS:CRLBF), and Columbia Care (OTCMKTS:CCHWF).
With the real estate development surrounding licensed cannabis producers somewhat in its infancy, companies like NewLake Capital Partners are stepping into uncharted waters. On August 20, 2021, the initial public offering took place, with shares starting at $30 per share. Since then, its share price has fallen by over 50%. That’s due to unreliable tenants going into default. But recently, NLCP had some good news — its share repurchase program and a possible exchange listing in the future.
On August 9, the company released second-quarter earnings, showing a bump in revenue of 8% and an increase in net income by 53% compared to the year before. Also similar to most REITs, NewLake Capital Partners offers a high dividend yield of 12.47% on an annual basis with a second-quarter dividend of $0.39 per share recently announced.
Rithm Capital (RITM)
Rithm Capital (NYSE:RITM) is a mortgage REIT investing in mortgage-backed securities and other related assets. Located in New York, New York, the company operates a mortgage origination and servicing business.
The company has traded publicly since 2013 and used to operate under the name New Residential Investment. Year-to-date, its share price is up by 16%. And it offers a dividend yield of 10.40% on an annual basis.
On July 24, Rithm Capital announced it would acquire Sculptor Capital Management (NYSE:SCU), a hedge fund sponsor, for approximately $639 million. In expressing the rationale behind this decision, Rithm Capital saw this move as a growth opportunity to expand its asset-managing business. On the company’s most recent earnings report, it reported a decrease in revenue of 28% but an increase in net income, coming in at $357 million.
VICI Properties (VICI)
VICI Properties (NYSE:VICI), headquartered in New York, New York, owns an extensive portfolio of gaming and entertainment locations, including MGM Grand Las Vegas (NYSE:MGM), The Venetian Las Vegas, and Caesars Palace Las Vegas. The company owns many of the largest hotels and casinos on the Las Vegas Strip. And VICI Properties also owns four championship golf courses in Canada and the United States.
Over the last year, the company has dropped by 11% in its share price. On July 26, VICI Properties announced its second-quarter earnings, which stated revenue growth of 36% compared to last year and a net income of $702 million.
The company reported several newsworthy events, including acquiring four gaming properties from Century Casinos (NASDAQ:CNTY) in Canada and partnering with Canyon Ranch, which operates health spa resorts.
As of this writing, Noah Bolton held a long position in RITM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
