Power REIT (NYSEAMERICAN:PW) said it has acquired a 35-acre property located in southern Colorado, through a wholly-owned subsidiary, that it plans to use for cannabis cultivation and processing.
The property currently has multiple greenhouses and support buildings, and the company said it plans to both upgrade the existing infrastructure and build additional greenhouse space. Upon completion, the property will comprise approximately 102,800 square feet of greenhouse and related space.
Power REIT’s total capital commitment for the project is approximately $3.9 million, including the acquisition cost. The property also has ample acreage for future expansion, the company noted, which it intends to finance.
“The acquisition is consistent with Power REIT’s investment strategy of focusing on sustainability including greenhouse crop cultivation which is less expensive and has a much lower carbon footprint than growing in an industrial property,” Power REIT CEO David Lesser said in a statement.
Specifically, the company’s subsidiary PropCo has entered into a 20-year triple-net lease with Walsenburg Cannabis LLC (WC), which will operate the cannabis cultivation facility. The lease covers approximately 22.2 acres of the 35-acre property. The remaining and undeveloped 12.8 acres are available for future expansions.
“This property is positioned to allow to compete favorably within the Colorado market by providing both the infrastructure and a configuration that should allow rapid scale-up in a cost-effective manner relative to competing facilities,” Lesser added. “In addition, the property has the potential for the significant expansion of the cultivation canopy, which will be implemented with a focus on becoming a low-cost producer of high-quality cannabis.”
The lease requires WC to pay all property-related expenses, including maintenance, insurance and taxes. After the initial 20-year term, the lease provides a pair of five-year renewal options and has a personal guarantee from WC’s president, the company said.
The lease adds straight-line annual rent of approximately $729,000, which represents an unleveraged Core FFO yield of approximately 18.8% on Power REIT’s invested capital, the company said. The payments will provide PropCo with a full return of its invested capital over the next three years after which it will receive an approximately 13% yield, which itself increases 3% annually.
Alongside the acquisition, Millennium Investment and Acquisition Company Inc (MILC) provided a loan to WC and is seeking approval from the Colorado regulators to take an ownership stake in WC that would make it a majority owner.
WC is led by Jared Schrader, an experienced cannabis cultivation operator who grew revenue at a Colorado facility from $150,000 annually to more than $150,000 weekly over the span of two years.
“We are excited to have the support of Power REIT to get this project growing,” Schrader said. “We believe this property can quickly become a large-scale producer of cannabis and cannabis-related products to serve the Colorado market.
“The property is subdivided into five parcels that each have local approval for the cultivation of cannabis,” he added. “This allows the property to pursue a rapid growth plan given the nature of Colorado cannabis licensing, which is based on a limited plant count initially per property. Once performance is demonstrated to the regulators, each property will have the potential to ‘tier-up’ and add more plants. In addition, WC is focused on a ‘speed to revenue’ approach given the start of operations in the spring growing season.”
‘Power REIT noted that it has announced several transactions that deploy a total of approximately $14 million in capital from its recently closed rights offering. This leaves roughly $22.6 million to deploy.
Contact Andrew Kessel at [email protected]
Follow him on Twitter @andrew_kessel
Story by ProactiveInvestors
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