Power REIT Acquires Properties in Colorado for Greenhouse Cannabis Cultivation in Highly Accretive Transaction

Rhea-AI Summary

Power REIT has entered a long-term lease with Cloud Nine Farms after acquiring 4 acres in Crowley County, Colorado. The $2.95 million investment includes a 38,440 sq ft greenhouse facility aimed at cannabis cultivation. The 20-year lease allows for maintenance and taxes to be covered by Cloud Nine, with rental income projected at $552,870 annually, yielding 18.7% on invested capital. Power REIT anticipates a forward Core FFO per share of $3.18, driven by recent financing, while acknowledging possible near-term dilution effects.

Positive

• Acquisition of 4 acres for $2.95 million enhances Power REIT's footprint in a growing market.
• 20-year lease with Cloud Nine Farms projected to yield approximately 18.7% on invested capital.
• Expected annual rent of $552,870 contributes to immediate Core FFO accretion.

Negative

• Potential dilution risk from additional shares issued during Rights Offering.
• Uncertainty in near-term quarterly results could drop below projected FFO run rate.

Enters into Long-Term Lease with Cloud Nine Farms – a Minority Owned Business

Old Bethpage, New York, April 20, 2021 (GLOBE NEWSWIRE) -- Power REIT (NYSE-AMEX: PW and PW.PRA) (“Power REIT” or the “Trust”) today announced that it has acquired two adjacent property parcels totaling 4.0 acres in Crowley County, Colorado (the “Property”) through a wholly owned subsidiary (“PropCo”). The Property is strategically located in a very favorable business setting of Southern Colorado that offers a growing environment for efficient and sustainable greenhouse cultivation.

As part of the transaction, Power REIT has agreed to fund the construction of an approximately 38,440 square foot greenhouse cultivation facility. Power REIT’s total capital commitment for the project is approximately $2.95 million including the land acquisition cost.

LEASE STRUCTURE

Concurrent with the acquisition, PropCo entered into a 20-year “triple-net” lease (the “Lease”) with Cloud Nine Farms LLC (“Cloud Nine”), a minority owned business that is owned by Mr. Joel Perez, a seasoned entrepreneur with extensive experience in the construction industry. Mr. Perez will operate the cannabis cultivation facility along with a team of experienced operators that specializes in the Colorado marketplace for cannabis cultivation, development, and supply chain logistics.

The lease requires Cloud Nine to pay all property related expenses including maintenance, insurance and taxes. After the initial 20-year term, The Lease provides two, five-year renewal options and has a personal guarantee from the owner of Cloud Nine. As mandated by the Lease, Cloud Nine will maintain a medical marijuana license and will operate in accordance with all Colorado and municipal regulations. The Lease also prohibits retail sales from the Property.

After an initial deferred rent period to allow for construction, the rental payments enumerated in the Lease provide PropCo with a full return of its invested capital over the next three years after which PropCo receives an approximately 13% yield increasing thereafter at a rate of 3% per annum.

The Lease, as structured, is immediately accretive to Core FFO and by adding straight-line annual rent of approximately $552,870, representing an unleveraged FFO yield of approximately 18.7% on the invested capital.

David Lesser, Power REIT’s Chairman and CEO, commented, “We continue to deploy capital on a highly accretive basis that supports our investment thesis of investing in sustainable properties. Southern Colorado continues to represent a compelling opportunity for our investment strategy in cannabis cultivation facilities. We believe that each additional acquisition diversifies our tenant concentration and further improves our focused strategy within this vibrant market, which we believe has significant runway for growth.”

Joel Perez, Cloud Nine’s President, commented, “Power REIT is providing Cloud Nine with a unique opportunity to dramatically scale our business through a prudent, accelerated growth plan. We are very excited about our future prospects and are looking forward to getting this property operational as quickly as possible and moving onto additional phases of expanding the cultivation area with Power REIT’s support.”

FORWARD CORE FFO PER SHARE

Power REIT has now deployed approximately $10 million of capital from its recently closed Rights Offering across several transactions. This leaves approximately $26.5 million to deploy. Power REIT’s current run-rate of FFO based solely on transactions closed and not taking into account deployment of additional capital is approximately $6.6 million as described in our most recently published Investor Presentation which is available at: www.pwreit.com/investors

Reflecting the impact of Power REIT’s recent Rights Offering and assuming the full deployment of its remaining proceeds into additional acquisitions at an average 16% yield to common equity, we foresee a forward Core FFO per share run rate of $3.18. However, it is important to understand that near-term quarterly results could be below this run-rate due to uncertainty of transaction timing and dilution from the additional shares issued pursuant to the Rights Offering that generated the available cash on Power REIT’s balance sheet for investment.

The following table provides a roadmap and sensitivity analysis for forward Core FFO per share:

Common Shares Outstanding (Pre Rights Offering)							1,916,139
Shares Sold in Rights Offering							1,383,394
Total Shares Outstanding (Post Rights Offering)							3,299,533
Rights Offering Price						$	26.50
Rights Offering Capital Raise - Gross						$	36,659,941
Proceeds Net of Costs (est.)			0.25	%		$	36,568,291
Announced Transactions Using Proceeds from Rights Offering:
Apotheke							1,813,398
Canndescent							2,685,000
Grail Project Expansion							517,663
Gas Station							2,118,717
Cloud Nine							2,947,905
Total							10,082,683
Remaining Rights Offering Proceeds for Investment						$	26,485,608

FAQ

What is the significance of Power REIT's lease with Cloud Nine Farms?

The lease represents a long-term partnership aimed at stable cash flow through cannabis cultivation.

How much has Power REIT invested in the new greenhouse facility?

Power REIT has committed approximately $2.95 million for the acquisition and construction of the greenhouse.

What is the expected yield from the investment in Cloud Nine Farms?

The lease is expected to yield an annual return of approximately 18.7% on the invested capital.

What are the projected FFO results for Power REIT following this acquisition?

Power REIT anticipates a forward Core FFO per share run rate of $3.18.

What risks does Power REIT face after the recent Rights Offering?

There is a potential dilution risk from new shares issued, which could impact near-term earnings.