Power REIT is a specialized real estate investment trust (REIT) focused on sustainable real estate with attractive risk adjusted returns and has a “triple bottom line” strategy and commitment towards people, planet, and profit. Today, they announced the Trust’s financial and operating results for the three-month period and nine-month period ending on September 30, 2021.
In the third quarter of 2021, Power REIT acquired a Controlled Environment Agriculture (“CEA”) facility in Michigan totaling 556,000 square feet of greenhouse cultivation and processing space. Along with this acquisition, Power REIT entered into a 20-year, triple-net lease (the “MI Lease”) with Merango Cannabis LLC, a wholly owned subsidiary of Millennium Investment and Acquisition Co. Inc.
On November 4, 2021, Power REIT made an amendment to the MI Lease to provide funding for additional improvements to the property. The additional budget items total $4.1 million, bringing their total capital commitment to $25,500,000. The MI Lease is expected to generate straight-line annualized rent of approximately $5,100,000.
To date, this acquisition represents Power REIT’s largest transaction, and the property happens to be the largest cannabis cultivation facility in Michigan, as well as the largest in the United States. The Michigan market generated $1 billion in total cannabis revenue in 2020 and is projected to reach $2 billion in 2021, an increase of 100% year-over-year.
“The property was acquired at an attractive basis,” researchers stated in the report. “And we believe our tenant will be a competitive, low-cost producer in the expanding Michigan market.”
Power REIT’s updated portfolio for the third quarter of this year touts 21 Controlled Environment Agriculture (CEA) properties totaling more than 1,000,000 square feet; 7 solar farm ground leases totaling 601 acres; and 112 miles of railroad property.
“During the third quarter, we completed our largest acquisition to date by acquiring the largest cannabis cultivation facility in the state of Michigan which is quickly becoming one of the largest cannabis markets in the United States,” stated David Lesser, CEO of Power REIT. “Power REIT’s total capital commitment to this property is $25.5 million and the lease generates an unleveraged yield of 20% which is highly accretive given the yield and size of the transaction. This is demonstrative of our updated business plan focused on the sustainable cultivation of cannabis in greenhouse properties, which has been driving substantial growth since its commencement in mid 2019.”
These acquisitions have proven to be so successful that other investment firms are now looking to emulate their model. Atlanta-based investment firm, UC Asset LP, has been creating a deal pipeline for its cannabis property investments using an investment model similar to public companies like Power REIT.
“There are only a few real estate investment companies on the public market with significant cannabis properties in their portfolio,” said Greg Bankston, managing general partner of UC Asset. “And some of these portfolios appear to be very successful despite their short history. We've decided to adopt this investment model.”
Among the public companies Bankston referred to, Power REIT was one of them. In February 2020, Power REIT announced expanding its portfolio in greenhouses for both food and cannabis cultivation. In the 21 months since this announcement, its stock price has soared 750% from $8.45 on February 03, 2020 to $63.46 on November 12, 2021.
“We have studied their revenue and profit numbers and researched their business model, including its material agreements with cannabis growers,” Bankston continued. “We have developed a deal pipeline that probably can adopt a very similar business model.”
The possibility of achieving similar operating results by duplicating another company’s success almost sounds too easy — like monkey see, monkey do — but there are also regulatory benefits to mimicking their deal structure as well. “Overall, the cannabis industry is still sensitive to the legal and regulatory environment, at both the state and federal level,” explained Bankston. “As a smaller business with limited resources to manage legal and regulatory risks, it's much easier to adopt deal structures that have been put into practice by established businesses.”
US Asset recently went under an umbrella deal with a number of OTC companies, under which UC Asset will invest into some cannabis properties and lease the properties to companies on a long-term basis. Overall, UC Asset is looking to expand its investments in hemp and medical-use cannabis properties on a larger scale and in more regions.
Controlled Environment Agriculture (CEA) facilities in the form of greenhouses, provide an extremely environmentally friendly solution, which consumes approximately 70% less energy than indoor growing operations that do not benefit from “free” sunlight. Meanwhile, greenhouses use 90% less water than field grown plants, and all of Power REIT’s greenhouse properties operate without the use of pesticides and avoid agricultural runoff of fertilizers and pesticides.
These CEA facilities cultivate medical Cannabis, which has been recommended to help manage a variety of medical symptoms, including seizures and spasms, multiple sclerosis, post-traumatic stress disorder, migraines, arthritis, Parkinson's disease, and Alzheimer’s.
“Our Core FFO per Common Share for the nine months ended September 30, 2021, increased approximately 94% year over year,” Lesser continued. “With the current stock price at 67.00 and a Forward Core FFO run rate of $3.68, Power REIT trades at an 18.1x multiple. We believe that our potential growth rate driven by acquisitions, combined with a relatively low Forward Core FFO multiple based only on existing assets and no additional acquisition activity, provides a compelling value proposition for investors.”
