Power REIT (NYSE-A:PW) Corp has said that its core funds from operations during the second quarter ended June 30, 2022, nudged up to $0.41 per share from $0.40 per share in the first three-month period of the year.
In an update on its quarterly performance, the specialized real estate investment trust (REIT) said that core funds from operations in the second quarter of 2021 was $ 0.51 per share.
“Power REIT (NYSE-A:PW) is currently focused on greenhouse as a unique real estate asset class as a sustainable solution for the cultivation of certain crops. Since pivoting to focus on greenhouses, we have acquired approximately 2.2 million square feet of which approximately 51% is currently focused on food cultivation and 49% is currently focused on cannabis cultivation,” David Lesser, Power REIT CEO said in a statement.
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"We recently acquired a 1.1 million square foot greenhouse focused on the cultivation of tomatoes which we believe was acquired at a deep discount to replacement cost. Regarding our cannabis portfolio, the wholesale price for cannabis has exhibited significant price compression over the past several quarters in most markets, which is impacting our cannabis tenants.," he added.
"As we work through this market dynamic, we remain optimistic that our investment thesis focused on greenhouses provides a competitive advantage relative to the common approach to cannabis cultivation in the form of warehouse/indoor facilities. Simply put, greenhouses cost less to build and are more efficient to operate than warehouse-style indoor cultivation facilities," Lesser concluded.
Michigan property
As previously disclosed, Power REIT noted that the cannabis licensing for its property located in Michigan has been delayed. The Michigan Cannabis Regulatory Authority (CRA) application requires submitting a Certificate of Occupancy (CO) or alternative documentation where a such a certificate does not exist. Marengo Township refused to provide the alternative documentation required, leading to Power REIT filing two litigations against the township. The required documentation has since been secured and the application for cannabis licensing was submitted. The licensing process is now moving forward.
Due to the uncertainty of the timing for receipt of cash rent Power REIT concluded that income from this lease will be recognized on a cash basis. As such, no income was reported for this property during Q1 2022 and Q2 2022.
“Based on the lease rate in place, and assuming income is recognized on a straight-line basis, the incremental Core FFO from this asset would be approximately $0.38 per share per quarter,” Power REIT said.
Leasing and tenant activity
- Power REIT said that for some of its tenants in Colorado, it has restructured monthly cash payments to lower amounts in 2022 and higher amounts in 2023 or 2024 due to recent dramatic wholesale cannabis price compression in the state.
- On May 1, 2022, a wholly owned subsidiary entered into a new triple-net lease a new tenant for one of the two subdivided lots owned in Ordway, Colorado. The term of the lease is 20 years and provides two options to extend for additional five-year periods. Power REIT's total commitment to this project is approximately $1,282,000 with $750,283 remaining to be funded.
- On June 1, 2022, PW CO CanRE Apotheke LLC amended its lease to provide $364,650 for additional improvements to the property as well as to restructure the timing of lease payments. The additional revenue on an annualized straight-line basis is approximately $62,000 which represents approximately 17% unleveraged funds from operations yield.
- On June 1, 2022, PW CO CanRE Grail LLC amended its lease with The Sandlot, LLC to restructure the timing of the rent payments but the total straight-line rent over the life of the lease is unchanged and an additional guarantor was added to the lease.
- On June 27, 2022, PW MI CanRE Marengo LLC entered into a lease amendment with Marengo Cannabis LLC to push out rent commencement to Q1 2023 to reflect the uncertainty around the timing of cannabis licensing.
"As previously mentioned, wholesale cannabis prices nationwide have compressed with Colorado among the most severe. We are working with our tenants to get through this period of excess supply and have executed a number of lease amendments to support their viability in this market climate. With wholesale prices below the cost of production, especially for indoor/warehouse style cultivation facilities, supply should continue to come off-line. We are seeing cultivation facilities shutting down and fire-selling product which is further driving down prices," said CEO Lesser.
"Ultimately, we expect supply and demand to revert to sustainable levels that can generate profits for efficient operators of cultivation facilities. We believe that this market climate will reaffirm our investment thesis that the lower cost of production in greenhouses ultimately represent the viable path forward for cannabis cultivation," he concluded.
Contact the author at jon.hopkins@proactiveinvestors.com