Power REIT is generating predictable cash flow from its sustainable cannabis and food cultivation land investments

• Predictable cash flow from long term triple net leased real estate
• Attractive funds from operations (FFO) multiple
• Sustainable pipeline of potential acquisitions

What Power REIT does:

Power REIT (NYSEAMERICAN:PW) is a specialized real estate investment trust (REIT) that owns sustainable real estate related to infrastructure assets, including properties for controlled environment agriculture (greenhouses for the cultivation of food and cannabis), renewable energy, and transportation.

The Old Bethpage, New York-based company was built upon the legacy of its wholly-owned Pittsburgh & West Virginia Railroad subsidiary, the first listed infrastructure REIT in the US that was based on its railroad property.

Power REIT’s railroad assets include 112 miles of track and related real estate located within the Marcellus and Utica Shale regions, stretching from western Pennsylvania to eastern Ohio. Norfolk Southern Railway has a 99-year lease on the property with unlimited renewal options, but is contracted to pay Power REIT more than $17 million in a termination fee upon default or failure to renew.

Power REIT also owns 600 acres of utility-scale solar farms, which generate enough kilowatts to power 4,600 homes each year. The company has long-term power purchase agreements for its sun-powered energy with high credit quality counterparties.

In July 2019, Power REIT expanded its focus to include agricultural real estate with an emphasis on Controlled Environment Agriculture (CEA), which is an innovative method of growing plants that involves creating optimized growing environments for a given crop indoors.

Going forward, Power REIT intends to concentrate on CEA-related real estate for growing food as well as cannabis with its sustainability Environmental, Social, and Governance (ESG) “Triple Bottom Line” – a commitment to profit, planet and people.

To that end, the company owns 50 acres of land with 297,000 square feet of greenhouse/processing space for medical cannabis cultivation in place and under construction. Power REIT also boasts an acquisition pipeline in excess of $100 million at various stages of negotiations.

Power REIT is led by CEO David Lesser, who has more than 30 years’ experience in real estate investment and finance and is currently president of Hudson Bay Partners, LP, an investment firm focused on real estate, real estate-related situations and alternative energy.

How is it doing:

Power REIT is charging forward on its growth path in 2021 with some notable property deals.    

In May, the company signed an agreement to acquire 522,530 square feet (sq ft) of high-tech greenhouse and cannabis processing space in Michigan for a purchase price of about $18.5 million.

Power REIT said the greenhouse will be operated as a Michigan Regulated Cannabis Cultivation and Processing Facility and will be the largest of its kind in Michigan and one of the largest in the US.

The company added that the state-of-the-art facility features advanced greenhouse cultivation controls and a state-of-the-art irrigation/fertigation system – a turnkey setup that is ready to start growing immediately.

Earlier in the month, Power REIT 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 about $3.9 million, including the acquisition cost. The property also has ample acreage for future expansion, the company noted, which it intends to finance.

Also in May, Power REIT reported first-quarter 2021 earnings per share of $0.33, a 275% year-over-year increase as the company continued to make accretive acquisitions to boost its bottom line.  

The REIT also said its Core Funds from Operations (FFO) increased by 142% year over year to $0.46 per share.  

The company noted that it has been able to realize “dynamic“ growth due to the attractive yields it is able to achieve with its strategic CEA investments.   

As well, Power REIT said it has an “active” pipeline of acquisitions and hopes to announce additional activity in the near future.

The company ended the quarter with cash and equivalents of about $37 million as of March 31, 2021, up from $5.6 million at the end of December.

In April, Power REIT revealed it had acquired 4.0 acres of land, consisting of two adjacent property parcels, in Crowley County, Colorado through its wholly-owned PropCo subsidiary for sustainable greenhouse cannabis cultivation. 

The company said the transaction is valued at about $2.95 million, which includes the construction of a 38,440 square foot greenhouse cultivation facility. 

As well, the company’s PropCo subsidiary agreed to lease the cannabis cultivation facility to Cloud Nine Farms LLC, a minority-owned business, for a period of 20 years, with two, five-year renewal options. Cloud Nine is expected to maintain a medical marijuana license but is prohibited from making retail sales from the property.

Power REIT noted the lease, as structured, is immediately accretive to the company’s core funds from operations (FFO) and with annual rent of about $552,870, it represents an unleveraged FFO yield of about 18.7% on the invested capital.

Meanwhile, in March, Power REIT announced that it had acquired an additional 2.2 acres in Colorado for greenhouse cannabis cultivation. It said the land parcel in Crowley County offers a “very favorable” business setting and growing environment for sustainable greenhouse cultivation.

Power REIT also agreed to fund about $2.1 million to acquire land and construct nearly 24,500 square feet of greenhouse and processing space for its new tenant, Gas Station LLC.

As part of the deal for the additional acreage, which was signed through a Power REIT subsidiary, the company entered into a 20-year “triple-net” lease with Gas Station, which will operate the cultivation facility.

Under the terms of the lease, Gas Station will be responsible for all property-related expenses. Once the initial 20-year term expires, the lease provides two, five-year renewal options and has a personal guarantee from the owners of Gas Station, according to Power REIT.

Power REIT told investors that the rental payment will provide its subsidiary with a full return on its invested capital over the next three years and thereafter at a 13.3% yield, which will increase at a rate of 3% per year after that.

The current lease also provides straight-line annual rent of about $301,000 – an unleveraged FFO yield of about 19% on the invested capital.

Inflection points:

• Significant growth through accretive acquisitions
• Increasing cash flow
• Participation in US cannabis industry growth 

What the boss says:

Commenting on the company’s recent Colorado land acquisition, Power REIT CEO David Lesser said in a statement: “Power REIT’s relatively small size combined with the attractive investment yields that we are generating through CEA property acquisitions, positions us for continued outpaced growth.”

“We believe Power REIT represents an attractive investment proposition based on our relatively low trading multiple than REIT peers with a clear growth trajectory,” Lesser added.

Contact Sean at [email protected]

Story by ProactiveInvestors