Power REIT (NYSE-A:PW), the specialized real estate investment trust (REIT), has reported a 9% increase in first-quarter revenue as its property portfolio continues to show growth.
Revenue for the three months to March 31, 2022, increased to $1.99 million from $1.82 million in 1Q 2021. Core funds from operations (FFO) available to common shareholders rose 5.8% to $1.35 million but core FFO per share declined 10% to $0.40. Excluding one-time items and other adjustments, it said they would have been unchanged at $0.46.
"As our investment platform continues to evolve, we remain focused on sustainable farming solutions by investing in Controlled Environment Agriculture properties in the form of greenhouses,” CEO David Lesser said in a statement. “Our legacy is in other sustainable real estate assets and we continue to embrace that ethos.”
READ: Power REIT says to fund additional capital improvements to greenhouse cultivation property in Maine
Power REIT noted that the price for wholesale cannabis has compressed dramatically over the past several quarters, which has had a significant impact on its cannabis tenants.
Part of the adjustment to FFO was related to eliminating straight-line rent for two tenants based on concerns about rent collectability at two properties located in Huerfano County, Colorado.
Additionally, it reminded investors that the Trust has stopped including revenue from its property located in Michigan due to uncertainty around cannabis licensing that is the subject of a previously-announced litigation related to the designation of the property as an agricultural use while growing cannabis.
“As we work through these headwinds, we are proactively backfilling space and are in active negotiations with replacement tenants,” Lesser added. “We have also now diversified to add a greenhouse focused on the cultivation of tomatoes.”
In March, Power REIT, through a newly formed wholly-owned subsidiary, PW MillPro, acquired its largest greenhouse property to date for $9.35 million in O'Neill, Nebraska.
The greenhouse is a 1.1 million square foot cultivation facility on approximately 86-acres, which will be used for the cultivation of tomatoes.
The acquisition included an additional 4.88-acre property with a 21-room employee housing building, which Power REIT said is a key strategic benefit for attracting the necessary labor to operate the greenhouse. As part of the transaction, the Trust agreed to fund the replacement of Energy Curtains for $534,430.
"The Nebraska transaction was funded using the Trust's debt facility with a 5.52% interest rate, representing a significant investment spread to our cost of capital relative to traditional real estate asset classes,” Lesser said. “Assuming no value is assigned to the employee housing facility or the extra land for expansion, Power REIT's cost basis for the greenhouse is approximately $8.81 per square foot and represents a substantial discount to replacement cost. This should help our tenant operator which is focused on becoming a large-scale low-cost tomato producer.
Lesser said the acquisition diversifies Power REIT’s exposure to the cannabis industry gyrations while continuing its focus on the benefits of Controlled Environment Agriculture (CEA) in the form of greenhouses.
Power REIT's portfolio currently comprises:
- 22 CEA properties (greenhouses) totaling more than 2.1 million square feet;
- 7 solar farm ground leases totaling 601 acres; and
- 112 miles of railroad property.
During the three months ended March 31, 2022, the Trust paid quarterly dividends of approximately $163,000, or $0.484375 per share, on Power REIT's 7.75% Series A cumulative redeemable perpetual preferred stock, which was payable on March 15, 2022, to shareholders of record on February 15, 2022.
"We remain optimistic that our investments in greenhouse properties provide a sustainable platform for indoor farming of food as well as cannabis,” Lesser concluded. “Greenhouses are more cost-efficient to build and more energy efficient to operate than warehouse-style indoor cultivation facilities. We are also encouraged that the tenant at our Michigan greenhouse commenced hemp cultivation having received a license from the Michigan Department of Agriculture and Rural Development that governs such activity. This will help our tenant gain valuable experience growing a strain of cannabis plant and we believe it may also support our belief that the greenhouse carries an agricultural property designation while growing cannabis."
The company has also posted an updated investor presentation, which is available using the following link: https://www.pwreit.com/investors
Power REIT, with a focus on the 'Triple Bottom Line' and a commitment to people, planet and profit, is a specialized real estate investment trust (REIT) that owns sustainable real estate related to infrastructure assets including properties for Controlled Environment Agriculture, Renewable Energy and Transportation.
The company is actively seeking to expand its real estate portfolio related to Controlled Environment Agriculture in the form of greenhouses for the cultivation of food and cannabis.
Contact the author at stephen.gunnion@proactiveinvestors.com