Power REIT — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2021. Power REIT is a Maryland REIT owning railroad, solar-land and controlled-environment agriculture (CEA) properties, with a growing focus on cannabis and food cultivation real estate. The interim financial statements are unaudited.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $2.55 million | $1.12 million | $6.64 million | $2.88 million |
| Net income | $1.83 million | $0.58 million | $4.47 million | $1.31 million |
| Net income attributable to common shareholders | $1.66 million | $0.51 million | $3.98 million | $1.10 million |
| Diluted EPS | $0.49 | $0.25 | $1.24 | $0.56 |
| Core FFO per common share (non-GAAP) | $0.62 | $0.35 | $1.61 | $0.83 |
Revenue growth primarily reflected rent from newly acquired CEA properties. Q3 revenue included $2.32 million of rental income and $0.23 million of railroad lease income; nine-month rental income was $5.94 million. Expenses rose with acquisitions, including higher depreciation and G&A, partly offset by lower interest expense. The company recorded a $320,492 rental-income write-off related to the PSP tenant; reported Core FFO excludes this item, per the filing’s reconciliation.
Margins: The filing does not provide a specific margin measure. Net income was approximately 72% of revenue in Q3 and 67% for the first nine months of 2021; these ratios reflect the REIT’s reported results and are not presented as company-defined operating margins.
Financial position, cash flow and capital
- At September 30, 2021, total assets were $87.47 million, up from $40.54 million at December 31, 2020. Real estate assets were $72.14 million, including $9.12 million of construction in progress.
- Cash and cash equivalents were $9.28 million, versus $5.60 million at year-end 2020. Nine-month operating cash flow was $6.08 million; investing cash outflow was $37.84 million, principally for property acquisitions and construction; financing cash inflow was $35.43 million.
- Long-term debt principal was $23.83 million, including $0.67 million due within 12 months. The balance sheet reports current and long-term debt net of unamortized discounts totaling approximately $23.25 million. Debt is primarily fixed-rate, with stated loan rates of 4.34%–5.0% and the railroad loan at 4.62%.
- Liabilities totaled $26.52 million. Series A preferred stock carrying value was $8.49 million; its stated dividend rate is 7.75%. Preferred dividends paid in the first nine months were $0.49 million.
- The February rights offering raised approximately $36.7 million gross and issued 1,383,394 common shares at $26.50 each. Common shares outstanding increased to 3,322,433 at September 30, 2021, from 1,916,139 at year-end 2020.
- Management expected available resources to fund operations and commitments, and anticipated $15.78 million in cash rent over the next 12 months based on leases in place. It noted additional acquisitions may require financing and that financing may not be available on favorable terms.
Portfolio changes and comparison with prior period
During the first nine months, Power REIT acquired nine properties and expanded a lease. CEA portfolio growth included the $7.69 million Canndescent facility in California and the $18.39 million Marengo greenhouse facility in Michigan, plus properties in Colorado and Oklahoma. New and expanded leases were generally 20-year triple-net leases, with tenants responsible for property expenses. The filing reports approximately $8.9 million of combined annual straight-line rent from the nine acquisitions and one expansion, subject to construction completion and lease terms.
At quarter-end, the portfolio included approximately 112 railroad miles, 601 acres of solar land associated with 108 MW of generating capacity, and 172 acres with approximately 1.09 million square feet of existing or under-construction greenhouses. Total revenue increased 128% in Q3 and 131% for the nine-month period versus the respective 2020 periods, while diluted EPS and Core FFO per share also increased. Growth was acquisition-led; common share issuance substantially increased the share count. Depreciation expense rose to $0.57 million for the first nine months from $0.10 million a year earlier.
Outlook, risks and notable items
- Construction and COVID-19: Management reported supply-chain and manufacturing disruptions affecting construction timelines. Delays could defer tenant operations and rent; the ultimate effects of COVID-19 were uncertain.
- Tenant and legal matters: PSP failed to complete construction and missed rent payments on the MF Property. The tenant agreed to surrender the property on November 1, 2021; Power REIT was seeking to complete construction and secure a replacement tenant. The company recorded a $320,492 rental-income write-off. The filing also reports a separate post-quarter termination of the Mav 5 tenant lease on November 5 and entry into a new 20-year lease with Golden Leaf Lane.
- Post-quarter investment: On November 2, 2021, Marengo’s lease was amended to fund approximately $4.1 million of additional improvements, expected to add approximately $830,000 of annual straight-line rent. Construction and leasing execution remain important to realizing expected returns.
- Cannabis-sector exposure: Competition for properties and tenant financing could increase or make lease terms less favorable. Proposed federal cannabis legislation could intensify competition, enable tenant access to lower-cost financing, and affect demand for the company’s properties. Certain leases provide for rent to reset to a lower 9% return if cannabis is federally legalized after year six.
- Related parties: The CEO is also associated with MILC, which has controlling interests in tenants at certain acquired properties. The filing reports rental income from these affiliated tenants and related-party administrative payments; independent trustees approved the arrangements.
- Distributions and REIT status: The company paid approximately $490,000 of preferred dividends during the nine-month period. It reported a $22.7 million tax net operating loss as of December 31, 2020, which may reduce or eliminate the usual REIT distribution requirement, subject to applicable requirements.
- Management stated that disclosure controls and procedures were effective as of September 30, 2021 and reported no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track construction completion, lease commencement and actual rent collection at newly acquired CEA facilities, especially Marengo and the previously unfinished projects.
- Verify recovery, remaining costs and replacement-tenant progress for the MF Property, and performance under the new Mav 5 lease.
- Assess tenant credit, guarantees and related-party lease terms, including the potential effects of cannabis regulatory or financing changes on occupancy and rents.
- Reconcile the approximately $4.1 million Marengo expansion commitment and expected incremental rent with the company’s cash, debt maturities and future financing needs.
- Monitor dilution and per-share performance following the rights offering, as well as coverage of preferred dividends and any future distributions.