Power REIT — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Power REIT is a Maryland REIT focused on real estate for transportation, energy infrastructure and controlled-environment agriculture (CEA), particularly cannabis and food production. Its portfolio included railroad assets, 601 acres leased to solar projects with approximately 108 MW of capacity, and approximately 52 acres with 327,000 square feet of existing or under-construction greenhouses leased to medical cannabis operators.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $1.821 million | $787,388; up 131% |
| Net income | $1.108 million | $252,087; up 340% |
| Net income attributable to common shareholders | $944,918; $0.34 basic and $0.33 diluted per share | $182,029; $0.10 basic and $0.09 diluted per share |
| Core FFO available to common shareholders (non-GAAP) | $1.275 million; $0.46 per basic share | $351,650; $0.19 per basic share |
| Net cash from operating activities | $1.205 million | $600,837 |
| Cash and cash equivalents at quarter-end | $37.071 million | $5.602 million at December 31, 2020 |
| Total debt, net of unamortized discount | $23.741 million on the balance sheet; principal outstanding approximately $24.345 million | $23.798 million net at December 31, 2020 |
| Total assets / total liabilities | $83.338 million / $25.521 million | $40.539 million / $25.329 million at December 31, 2020 |
Rental income increased to $1.592 million from $503,202, chiefly reflecting acquired properties. Expenses rose $177,498 to $712,799, primarily because depreciation increased by $169,401 as acquired assets and tenant improvements entered service. Interest expense was $287,628. The filing does not report a gross or operating margin.
Cash from financing was $36.369 million, mainly from the rights offering, which generated $36.598 million net of offering expenses; investing activities used $6.105 million, including land, facility and construction spending. The company paid $163,210 in preferred dividends. Approximately $644,365 of principal was due over the next 12 months. Management estimated $11.257 million of cash rent over that period and said available resources were expected to fund operations and commitments; further acquisitions may require additional financing.
Material changes and developments
- In February, Power REIT completed a rights offering at $26.50 per share, issuing 1,383,394 common shares and raising approximately $36.7 million gross. Common shares outstanding increased from 1,916,139 at year-end to 3,299,533 at March 31.
- The company acquired four CEA properties during the quarter and expanded one project: three Colorado sites for planned greenhouse construction and a 37,000-square-foot California facility. It issued 192,308 Series A preferred shares, valued at approximately $5.0 million, as part of the Canndescent acquisition.
- New and expanded projects carried approximately $8.1 million of stated capital commitments, including construction funding. The filing’s portfolio table assumes approved construction is completed; several facilities remained under construction at quarter-end.
- Total preferred shares outstanding increased to 336,944 from 144,636. Series A preferred stock pays a 7.75% cumulative dividend; the quarterly dividend was $0.484375 per share.
Outlook, risks and other notable items
- No formal earnings or revenue guidance was provided. Management’s stated strategy is to expand CEA real estate holdings, and it described cash resources as sufficient for operations and current commitments, while cautioning that further acquisitions could require financing that may not be available on favorable terms.
- Colorado cannabis leases are generally triple-net, 20-year leases with tenant expense responsibility, personal guarantees and planned rent increases. Certain leases provide for rent to reset to a 9% return on invested capital if cannabis is legalized federally after year six, below the stated initial 12.9% return structure.
- Cannabis licensing, regulatory compliance and the uncertain effects of potential federal legalization are relevant business risks. Management reported no direct COVID-19 impact to date but said tenant and portfolio effects remained uncertain. The filing states there were no material changes to the risk factors in the 2020 Form 10-K.
- The company disclosed current litigation but said outcomes and potential impacts could not be predicted; litigation has incurred defense costs and diverted management resources. No specific amount of potential loss is provided in the supplied filing text.
- Management said disclosure controls were effective as of March 31, 2021 and reported no material change in internal control over financial reporting during the quarter. A subsequent event was the April 20 acquisition of two Colorado properties for $300,000, with approximately $2.95 million committed for construction; a quarterly preferred dividend was declared April 30.
Key facts for investors to verify
- Confirm the status, remaining funding requirements and completion timing of the greenhouse projects, and whether projected rents commence as planned.
- Review tenant credit, lease guarantees, licensing and regulatory compliance, especially for cannabis operators and the Canndescent lease’s stated five-year term.
- Reconcile the MD&A estimate of $11.257 million in cash rent over the next 12 months with the lease-note schedule of aggregate cash receipts, including its partial-year presentation.
- Assess the effects of the rights offering and preferred issuance on common-share dilution, future dividend obligations and per-share performance.
- Review debt maturities, security and covenants, and the company’s ability to finance additional acquisitions without unfavorable terms.
- Examine the 2020 Form 10-K and relevant subsequent filings for full risk-factor and litigation details; this 10-Q provides no quantified litigation exposure.