Power REIT (NYSEAMERICAN:PW) has acquired a greenhouse cultivation facility and property in Oklahoma through wholly owned subsidiary (PropCo).
The company said its total capital commitment for the project including a 9.35-acre property acquisition cost is about $2.65 million.
As part of the transaction, Power REIT has agreed to fund the renovation of about 40,000 square feet (sq ft) of greenhouse space, 3,000 sq ft of office space, and 100,000 sq ft of fully fenced outdoor growing area with 20,000-plus sq ft of hoop structures.
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The company noted the property is located in the northeast corner of Oklahoma, offering a favorable growing climate for greenhouse cultivation.
Power REIT said that concurrent with the acquisition, PropCo entered into a 20-year “triple-net” lease with Vinita Cannabis LLC (VC), which will operate the property as a cannabis cultivation facility.
The company said the lease requires VC to pay all property-related expenses including maintenance, insurance, and taxes. After the initial 20-year term, the lease also provides two, five-year renewal options and has a personal guarantee from an owner of VC.
Power REIT said VC also will maintain a medical marijuana license and will operate in accordance with all Oklahoma and municipal regulations, as the lease prohibits the retail sale of cannabis at the property.
After an initial deferred rent period to allow for renovations, the lease stipulates rental payments that provide PropCo with a full return of its invested capital over the next three years, and thereafter, provides an approximately 13% yield increasing thereafter at a rate of 3% per annum.
Power REIT said the lease, as structured, provides straight-line annual rent of approximately $503,000, representing an unleveraged Core FFO yield of approximately 19% on the invested capital.
“We are expanding our nationwide footprint and diversifying portfolio risk with this acquisition in Oklahoma,” said CEO David Lesser, in a statement.
“Our debut in this state positions us to participate in what has been coined, the “wild-wild-west” and benefit from the opportunities inherent with the Oklahoma cannabis market rapid expansion. This cultivation facility is already operational and will be upgraded to provide operational improvements. There is also ample expansion opportunity that will allow our tenant to capitalize on the increasing demand for cannabis products in Oklahoma.”
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Power REIT noted that VC is led by Jared Schrader, an experienced cannabis cultivation operator with a solid track record. Schrader recently grew revenue at a Colorado cannabis cultivation facility from annual revenue of $150,000 to weekly revenue of over $150,000 ( over the span of two years.
Simultaneous with Power REIT’s acquisition of the Property, the company said Millennium Investment and Acquisition Company Inc (MILC) provided startup capital to VC whereby MILC is a majority owner of VC in the form of a preferred equity ownership stake in a joint venture with the management team of WC. David Lesser, Power REIT’s chairman and CEO, is also chairman and CEO of MILC.
“Taking over the existing operations gives us a running start in Oklahoma and we look forward to building a team which can compete favorably within this rapidly growing market,” Schrader said. “We believe this property is well-positioned to allow us to become a large-scale producer of high-quality cannabis at a competitive cost. We are focused on speed to revenue as well as ramping up our plant count which will drive substantial revenue growth.”
Lesser added: “We continue to deploy capital on very attractive terms within the CEA space, while focusing on leasing properties to regulated cannabis tenant-operators. This has driven dramatic growth that we believe will continue with the current demand for CEA real estate. We also believe that our relatively low trading multiple of Core FFO combined with this dramatic growth trajectory creates a compelling investment opportunity. We look forward to additional announcements in the near future as we continue to implement our strategic business plan.”
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