Power REIT — FY2020 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2020, with fourth-quarter comparisons. Power REIT is a Maryland REIT owning U.S. real estate tied to transportation, energy infrastructure and controlled environment agriculture (CEA), with recent growth centered on cannabis cultivation properties. Most leases are long-term triple-net arrangements, making tenants responsible for property expenses.
Financial and operating performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $4.273 million | $2.181 million |
| Net income | $2.172 million | $0.947 million |
| Net income attributable to common shareholders | $1.892 million | $0.667 million |
| Diluted earnings per common share | $0.96 | $0.36 |
| Core FFO available to common shareholders | $2.560 million; $1.34 per share | $1.174 million; $0.63 per share |
| Net cash provided by operating activities | $2.932 million | $1.372 million |
| Cash and cash equivalents at year-end | $5.602 million | $15.843 million |
- Revenue increased 96%; rental income rose by approximately $2.051 million, principally from CEA acquisitions. GAAP net income increased 129%, while income attributable to common shareholders increased 184%.
- Reported net income was approximately 50.8% of revenue. Interest expense increased to $1.167 million from $0.527 million, primarily reflecting the loan entered into in November 2019; G&A rose to $0.528 million from $0.409 million.
- FY2020 fourth-quarter revenue was $1.395 million versus $0.627 million; net income attributable to common shareholders was $0.794 million versus $0.192 million; and common Core FFO was $0.974 million versus $0.327 million.
- Cash used in investing activities was $12.319 million, largely for property acquisitions and construction. Cash used in financing activities was $0.878 million, including $0.598 million of debt principal payments and $0.280 million of preferred dividends.
- Year-end debt principal was approximately $24.410 million. Scheduled principal payments are $0.636 million in 2021; debt service due in the next 12 months was reported as $0.636 million. The balance sheet reports total liabilities of $25.329 million and equity of $11.718 million.
- Management estimated $7.306 million of cash rent over the next 12 months based on leases in place at year-end. Preferred dividends paid during 2020 were approximately $0.280 million, or $1.9375 per preferred share. Common dividends are at the board’s discretion.
Portfolio changes and material comparisons
- Power REIT acquired nine CEA properties in Colorado and Maine during 2020, with approximately 187,000 square feet of greenhouse and cultivation/processing space and a total capital commitment of approximately $17.9 million. New leases and amendments were expected to generate approximately $3.4 million in straight-line annualized rent, at yields reported above 18%.
- At December 31, CEA tenants represented 52% of consolidated revenue, compared with 21% from the railroad lease and 19% from the Regulus solar tenant. In 2019, the railroad and Regulus tenants represented approximately 42% and 37%, respectively.
- Year-end assets included about 112 miles of railroad infrastructure, 601 acres leased to solar projects with approximately 108 MW of capacity, and 216,278 square feet of CEA space. Several CEA developments remained under construction, with stated completion targets in 2021.
Outlook, risks and unusual items
- Management expects to pursue further CEA acquisitions and believes demand for cannabis-related greenhouse real estate will continue. The filing provides no formal earnings or FFO guidance. Management said year-end cash and resources were expected to support operations and commitments, while further acquisitions could require additional financing.
- A rights offering closed February 5, 2021, raising approximately $36.7 million through 1,383,394 additional common shares. Subsequent acquisitions included Colorado properties and a California greenhouse property; the Canndescent purchase was funded with $2.685 million cash and 192,678 Series A preferred shares. These are post-year-end developments, not FY2020 results.
- Key risks include cannabis-related activities being illegal under U.S. federal law despite state authorization; uncertain federal enforcement, banking access and regulation; tenant and property concentration; tenant credit risk; and construction delays or cost overruns. Cannabis leases may reset to a 9% return on original invested capital after year six if federal legalization occurs.
- Other risks include secured debt and refinancing/capital needs, reliance on key executive David Lesser, potential related-party conflicts, REIT qualification and distribution requirements, and limited liquidity and share-price volatility. Management disclosed that an affiliate of the CEO received $25,500 for administrative and accounting support in 2020, versus $12,000 in 2019.
- The independent auditor issued an unqualified opinion on the financial statements and reported no critical audit matters. Management stated disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal control.
Important facts for investors to verify
- Reconcile cash-flow figures: the audited cash-flow statement reports $2.932 million of operating cash flow, while MD&A cites approximately $2.957 million.
- Review the audited debt maturity schedule, loan covenants and collateral, including the railroad-related loan structure and secured property debt.
- Assess whether CEA tenants can complete construction, obtain and maintain required licenses, and generate sufficient cash flow to meet lease obligations.
- Verify the status, funding and expected rent commencement of post-year-end acquisitions and projects still under construction.
- Evaluate the effects of the February 2021 common-share offering and subsequent preferred-share issuance on dilution, leverage, liquidity and per-share measures.