Power REIT — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 31, 2022. This is an annual report, not a standalone fourth-quarter earnings report. Comparisons below are with FY 2020.
Business context
Power REIT is an internally managed Maryland REIT owning U.S. real estate tied to transportation, energy infrastructure and controlled environment agriculture (CEA). Its portfolio includes approximately 112 miles of railroad infrastructure, 601 acres leased to solar projects totaling about 108 MW, and roughly 172 acres with 1.09 million square feet of greenhouse and processing space. All greenhouse properties were intended for state-licensed cannabis operations. Leases are generally long-term triple-net leases, placing property expenses on tenants.
During 2021, the Trust acquired nine greenhouse properties in four states, representing approximately 873,000 square feet and $51.9 million in total capital commitments, excluding transaction costs.
Financial performance and position
| Metric | FY 2021 | FY 2020 | Change / context |
|---|---|---|---|
| Total revenue | $8.46 million | $4.27 million | Up 98%; mainly higher rental income from new properties |
| Net income | $5.14 million | $2.17 million | Up approximately 137% |
| Net income attributable to common shareholders | $4.49 million | $1.89 million | Up approximately 137% |
| Basic / diluted earnings per common share | $1.41 / $1.38 | $0.99 / $0.96 | Basic EPS up 42% |
| Core FFO available to common shareholders | $6.14 million | $2.56 million | Up 140%; non-GAAP measure |
| Core FFO per common share | $1.93 | $1.34 | Up 44%; non-GAAP measure |
| Net cash from operating activities | $8.00 million | $2.96 million | Increase attributed primarily to new leases |
| Cash and cash equivalents at year-end | $3.17 million | $5.60 million | Down $2.43 million |
| Long-term debt principal | $23.78 million | — | $675,370 principal due in 2022 |
Total expenses were $3.31 million, including $880,863 of general and administrative expense, $867,031 of depreciation and $1.14 million of interest expense. The filing does not present a specific operating-margin measure. Total assets were $85.32 million and total liabilities were $27.01 million at year-end. Preferred stock carried a $25 per-share liquidation preference; 336,944 Series A shares were outstanding. FY 2021 preferred dividends were approximately $653,000, or $1.9375 per share.
Investing activities used $42.10 million, including $30.87 million for land and facilities and $11.23 million for construction in progress. Financing activities provided $31.67 million, principally from the common-share rights offering. The Trust reported approximately $14.5 million of expected cash rent over the next 12 months and $675,370 of scheduled debt service during that period.
Material changes versus FY 2020
- Rental income increased by approximately $4.25 million as acquisitions and new leases expanded the CEA portfolio; total revenue nearly doubled.
- General and administrative expense rose by $353,045 and depreciation increased by $725,311, reflecting portfolio growth and properties placed in service. Interest expense decreased by $26,757.
- Revenue concentration declined: four properties accounted for approximately 48% of FY 2021 consolidated revenue, versus approximately 68% in FY 2020. The 2021 shares were Sweet Dirt 15%, Canndescent 12%, Norfolk Southern 11% and Regulus Solar 10%.
- The February 2021 rights offering raised approximately $36.7 million gross through issuance of 1,383,394 common shares at $26.50 each. The Canndescent acquisition also included issuance of 192,308 Series A preferred shares valued at approximately $5.0 million.
- A $20 million debt facility was signed in December 2021 at 5.52%; no amount was drawn by year-end. The facility has a 12-month draw period, then amortizes over five years, and requires a debt-service coverage ratio of at least 2.0 to 1.0.
Outlook, commentary, risks and unusual items
- Outlook: Management plans to pursue CEA greenhouse acquisitions and property improvements, and to explore greenhouse opportunities for other crops. The filing provides no formal earnings or revenue guidance. Management said cash on hand and facility availability were expected to support operations and commitments, while further acquisitions may require additional financing.
- Tenant and lease risks: Tenants are often single-property entities with limited operating histories and limited external credit support. Cannabis prices, licensing, construction delays and tenant financing may affect rent collection and property values. Four properties generated nearly half of 2021 revenue.
- Defaults and disputes: Power REIT evicted PSP from a Colorado property in November 2021 after rent defaults and construction issues; the property was being completed and re-leased. Cloud Nine failed to pay rent; an eviction order was granted in February 2022 and appealed. The Marengo tenant was still pursuing required cannabis licensing and approvals at year-end, and the Trust did not straight-line rent for that property.
- Federal cannabis law: Cannabis remained illegal under U.S. federal law despite state-level licensing. Changes in federal enforcement, banking access, anti-money-laundering rules or state regulation could materially affect tenants, the Trust, its listings and its ability to collect rent or raise capital.
- Related-party matters: CEO David Lesser also leads MILC, whose affiliates are tenants at properties acquired in Colorado, Oklahoma and Michigan. The filing reports related-party rental income and notes independent-trustee approval. A March 2022 Sweet Dirt amendment included $2.205 million of improvements to be supplied by an entity effectively owned by an affiliate of Mr. Lesser.
- Subsequent events: On March 22, 2022, $2.5 million was drawn under the debt facility. A January 2022 Walsenburg lease amendment provided $625,000 for additional space and equipment; a March 2022 Sweet Dirt amendment provided $3.508 million for a cogeneration/absorption-chiller project. These occurred after the reporting date.
- Other risks: The Trust depends on key management, has development and re-leasing risks, and faces interest-rate, environmental, insurance, REIT qualification and NYSE American listing risks. The common-share price ranged from $28.50 to $70.90 during 2021, and management cautions that trading volume and share prices may be volatile.
- Audit and controls: The auditor issued an unqualified opinion on the financial statements and reported no critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal controls.
Key facts investors should verify
- Cash rent actually collected, tenant arrears and security-deposit use versus straight-line rental income; the filing identifies several evictions, lease transitions and a licensing delay.
- Marengo licensing and construction progress, the timing of operations and rent commencement, and the economics of its approximately $25.6 million commitment.
- Tenant-level financial capacity and rent coverage, particularly for the largest revenue contributors and related-party tenants.
- Debt-facility availability, the March 2022 draw, collateral provisions, coverage-covenant headroom and refinancing needs against scheduled principal payments.
- Whether planned acquisitions and improvement spending can be funded without materially diluting common shareholders or increasing leverage, and whether operating cash flow supports distributions.
- Approval and execution of related-party transactions, including the Sweet Dirt equipment project; confirm the role of independent trustees and the terms obtained.
- Ongoing REIT qualification, applicable cannabis laws and enforcement policy, and continued listing eligibility for the common and preferred securities.