Power REIT (NYSE American: PW) is announcing an expanded focus for
acquisitions. In addition to its existing high quality real estate
related to transportation infrastructure and alternative energy,
Power REIT is expanding its focus to include agricultural real
estate with a focus on Controlled Environment Agriculture (“CEA”).
CEA is an innovative method of growing plants that involves
creating optimized growing environments for a given crop indoors.
Power REIT intends to focus on CEA related real estate for growing
food as well as cannabis.
Controlled Environment
Agriculture
Power REIT believes agricultural production is
ripe for technological transformation and that we are at the early
stages of a boom in agricultural venture capital that, among other
things, will shift food production for certain crops from
traditional outdoor farms to CEA “food factories.” Since a
significant portion of any given CEA enterprise is real estate,
Power REIT sees an opportunity to participate in the trend towards
indoor agriculture.
CEA facilities are generally greenhouses or
industrial properties specifically designed to efficiently grow
crops. Power REIT will primarily focus on greenhouses as opposed to
other forms of indoor agriculture properties based on a thesis that
for many crops, greenhouses should be the most cost competitive
producer given the higher capital and operating costs associated
with other indoor growing facilities that do not benefit from
sunlight for their crops.
Controlled Environment Agriculture for
Food Production
CEA for food production is widely adopted in
parts of Europe and is becoming an increasingly competitive
alternative to traditional farming for a variety of reasons. CEA
caters to consumer desires for sustainable and locally grown
products. Locally grown indoor produce will have a longer shelf
life as the plants are healthier and also travel shorter distances
thereby reducing food waste. In addition, a controlled environment
produces high-quality pesticide free products that eliminates
seasonality and provides highly predictable output that can be used
to simplify the supply chain to the grocer’s shelf.
As the amount of productive farmland continues
to decline, CEA can provide a sustainable and economic solution to
feed our growing population. Climate change is having a negative
impact on traditional farming and is making once rich areas for
farming arid and inhospitable. Hydroponic growing use 95% less
water and can grow more than twenty-times traditional farming in
the same area. Simply put, CEA can lower the carbon footprint
associated with our food supply.
Power REIT has an active pipeline of CEA
projects it is pursuing.
Controlled Environment Agriculture for
Cannabis
The legal cannabis industry in the United States
is projected to hit $25 billion of revenue by the year 2025.
With the passage of the 2018 Farm Bill, the
cultivation of hemp was legalized and regulated across the Unites
States. Hemp is produced from the Cannabis Sativa strain and has
properties that contain almost no THC, the federally illegal
hallucinogenic compound found in marijuana. Hemp has many
industrial uses including textiles, animal bedding and mulch. Hemp
is also commonly used to produce CBD which is used in a variety of
skincare and homeopathic products ranging from oils and
moisturizers to sleep and relaxation aids.
Currently 34 states have legalized marijuana for
medical purposes and 11 of those states have also legalized adult
recreational use of marijuana. Many other states have
decriminalized marijuana use even without formally changing laws
and many remaining States continue to evaluate legalization. In
addition, there is the potential for federal legalization across
the United States at some point in the future given the momentum
generated at the State level.
Power REIT is focused on investing in the
cultivation and production side of the cannabis industry through
the ownership of real estate. As such it is not directly in the
cannabis business and also not even indirectly involved with
facilities that sell cannabis directly to consumers. By serving as
a landlord, Power REIT believes it can generate attractive risk
adjusted returns related to the fast growing cannabis industry and
that this offers a safer approach than investing directly in
cannabis operating businesses.
Acquisition of greenhouse properties in
Colorado for cultivation and processing of Cannabis
On July 15, 2019, through wholly owned
subsidiaries, Power REIT is announcing that it has completed the
acquisition of two greenhouse properties in southern Colorado. One
property was acquired for $1,075,000 and is 2.11 acres and has an
existing greenhouse and processing facility totaling 12,996 square
feet. The other property was acquired for $695,000 and is 5.2 acres
and has an existing greenhouse and processing facility totaling
5,616 square feet. The total combined purchase price of $1,770,000
plus acquisition expenses was paid with existing working
capital.
Concurrent with the closing on the acquisitions
we entered into leases with a tenant that is licensed for the
production of medical marijuana at the facilities. The tenant is an
affiliate of a company that is active in the Colorado cannabis
market and currently has two indoor cultivation facilities and five
dispensary locations. The tenant has also received a preliminary
approval to operate a dispensary in the town where the properties
are located. The leases require the tenant to maintain a medical
marijuana license and operate in accordance with all Colorado and
local regulations with respect to their operations and also
prohibits the retail sale of its products from the properties.
The leases provide that tenant is
responsible for paying all expenses related to the properties
including maintenance expenses, insurance and taxes. The term of
each of the Leases is 20 years and provides two options to extend
for additional five-year periods. The Leases also have financial
guarantees from affiliates of the tenant.
The rent for each of the leases is structured
whereby after a six-month free-rent period, the rental payments
provide a full return of invested capital over the next three years
in equal monthly payments. After the 42nd month, rent is structured
to provide a 12.5% return on the original invested capital amount
which increases at a 3% rate per annum. At any time after year 6,
the rent level will be readjusted down to an amount equal to a 9%
return on the original invested capital amount and will increase at
a 3% rate per annum based on a starting date of the start of year
seven.
The combined straight-line annual rent will be
approximately $331,000 although, as described above, the rental
payments are accelerated such that we receive a full return of
capital over the first 42 months of the lease. David Lesser, Power
REIT’s Chairman and CEO, commented, “These acquisitions represent a
starting point for our new focus on greenhouse based Controlled
Environment Agriculture projects and will be immediately accretive
to earnings. We have an active pipeline of potential acquisitions
that we are pursuing. Given the small size of our company, we
believe that we can deploy capital for real estate focused on
Controlled Environment Agriculture on a highly accretive
basis.”
Both properties have plans to expand the
greenhouse growing and processing space and the leases provide that
we have the right to fund such projects on comparable terms to the
original leases. Mr. Lesser commented that “this creates the
built-in ability for us to deploy additional capital on risk
adjusted terms that should prove to be attractive and on a highly
accretive basis.”
The greenhouse properties are located in a very
favorable plant-growing environment that benefits from over 360
days of sunlight annually and offers a dry climate. In addition the
local communities are supportive of cannabis growing facilities
unlike places which are confronted with “not in my backyard”
pressures. Both properties have been granted “use by right”
authority from the county to grow cannabis which provides long-term
stability to allow the facility to grow cannabis. In addition, both
properties are located in an Opportunity Zone. Opportunity Zones
were created by the Tax Cuts and Jobs Act of 2017 and provide a
deferral of and potentially an elimination of capital gains related
to qualified investments.
Updated Investor
Presentation
On July 15, 2019, Power REIT is announcing that
an updated version of its investor presentation is available on its
website: www.pwreit.com
About Power REIT
Power REIT is a real estate investment trust
that owns real estate related to infrastructure assets including
properties for Controlled Environment Agriculture, Renewable Energy
and Transportation. Power REIT is actively seeking to expand its
real estate portfolio related to Controlled Environment Agriculture
and Renewable Energy.
www.pwreit.com.com
Cautionary Statement about
Forward-Looking StatementsThis document includes
forward-looking statements within the meaning of the U.S.
securities laws. Forward-looking statements are those that predict
or describe future events or trends and that do not relate solely
to historical matters. You can generally identify forward-looking
statements as statements containing the words "believe," "expect,"
"will," "anticipate," "intend," "estimate," "project," "plan,"
"assume", "seek" or other similar expressions, or negatives of
those expressions, although not all forward-looking statements
contain these identifying words. All statements contained in this
document regarding our future strategy, future operations, future
prospects, the future of our industries and results that might be
obtained by pursuing management's current or future plans and
objectives are forward-looking statements. You should not place
undue reliance on any forward-looking statements because the
matters they describe are subject to known and unknown risks,
uncertainties and other unpredictable factors, many of which are
beyond our control. Our forward-looking statements are based on the
information currently available to us and speak only as of the date
of the filing of this document. Over time, our actual results,
performance, financial condition or achievements may differ from
the anticipated results, performance, financial condition or
achievements that are expressed or implied by our forward-looking
statements, and such differences may be significant and materially
adverse to our security holders.
Contact:
David H. Lesser, Chairman & CEO(212)
750-0371dlesser@pwreit.com
301 Winding RoadOld Bethpage, NY
11804212-750-0371www.pwreit.com
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