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Investors in mortgage REIT stocks have done well for the past couple of years due to very generous dividends. Many mortgage REIT stocks like Annaly Capital Management (NYSE:NLY) yield over 13%, and over a few years that can really start to add up. In fact, an investor could see their money double in several years with those types of returns. However, the mortgage REIT stocks have come under pressure lately and a number of these companies have recently seen a wave of mortgage refinancings due to record low interest rates. When this happens the yield spreads are negatively impacted and that results in lower profits for companies. Since mortgage REIT stocks pay out a high percentage of earnings, a drop in profits can quickly turn into a dividend cut which Annaly Capital Management recently experienced. While the mortgage REIT stocks may still make sense for income investors, these companies could face additional earnings weakness and see dividend cuts. Shareholders who want to diversify out of this sector, or investors who want to consider a different type of real estate play that could provide very highs returns and a possible double should consider the stock below:

Reading International (NASDAQ:RDI) is a major owner and operator of movie theatres with 27 cinemas in the United States, and 29 cinemas in Australia and New Zealand. However, the main interest to investors might not be the movie business but rather the real estate that this company owns. In fact, buying shares of this company might be like buying prime New York City and other real estate for about half price. Of particular interest is that it controls four extremely valuable properties in Manhattan, including the Angelika Film Center and cafe, in the Soho district. It also owns development property with about 200 acres in California and acreage in Australia and New Zealand.

A Barron's article recently highlighted this company and it made a strong case for the stock to move significantly higher, and even more than double. The article states:

"Capstone Equities, a New York real-estate concern, pegged Reading's value at between $12 and $14 a share in a May 15 letter to Reading's board of directors. Capstone, a Reading shareholder, hasn't been shy about backing up its estimate with money. Earlier this year the firm offered $100 million for two of Reading's Manhattan properties -- City Cinemas 1, 2 & 3, located on Third Avenue, and the Union Square Theater -- a substantial premium to the properties' $32 million stated book value. Reading's management rejected the offer as "non-acceptable," but a sale could still be in the cards."

Ever since the Barron's article came out, the stock has trended higher and that has probably started to put some pressure on shorts. However, the post-election market correction has caused a pullback in the stock that is worth buying. The short case seems to be based on hopes that management will not act to unlock shareholder value. According to Shortsqueeze.com, there are about 320,000 shares short. Since this stock only trades about 28,600 shares on an average day, it could take about 11 days worth of trading volume. With that level of shorts in the stock, if any good news or a deal to sell a property is announced, the shorts could provide the fuel for a solid short-squeeze rally.

It's not clear what will ultimately happen to these very valuable properties as Reading International has expressed interest in developing some of them itself. However, it does seem clear that the shares have substantial upside potential that could be unlocked by management in the near future. If you want to read a great and highly-detailed article on Reading, check out what Seeking Alpha contributor, Andrew Shapiro wrote in August. With a number of major shareholders involved in this stock, deals being offered to buy the prime property it owns and with the recent Barron's article, it might just be a matter of time before the true value of this stock is unlocked, giving investors the upside potential to more than double in value.

Key Data Points For Reading International From Yahoo Finance:
Current Share Price: $5.59
52-Week Range: $4.03 to $6.62
Dividend: none
2012 Earnings Estimate: n/a
2013 Earnings Estimate: n/a

Key Data Points For Annaly Capital From Yahoo Finance:
Current Share Price: $14.87
52-Week Range: $14.25 to $17.75
Dividend: $2 which yields 13.4%
2012 Earnings Estimate: $1.83 per share
2013 Earnings Estimate: $1.57 per share

Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.

Source: Reading International: Analysts Expect This Real Estate Play To Double