US (ME): Maine-based greenhouse acquired for cannabis cultivation and processing

Power REIT acquired a 3 acre property in York County, Maine for $1,000,000 through a newly formed wholly owned subsidiary (“PropCo”). "The property includes a 32,800 square-foot greenhouse and 2,800 square foot processing/distribution building that are both under active construction," the team with the company explains. "Simultaneous with the acquisition, PropCo entered into a lease with an operator (“Sweet Dirt”) that is licensed for medical cannabis cultivation, processing and distribution at the property (“Tenant”). As part of the acquisition, PropCo will reimburse Tenant for $950,000 of the approximately $1.5 million Sweet Dirt has incurred to date related to the construction and will fund up to approximately $2.97 million of costs to complete the construction. Accordingly, Power REIT’s total investment in the property is approximately $4.92 million which translates to approximately $138 per square foot for a state of the art Controlled Environment Agriculture Greenhouse (“CEAG”). The lease is structured to provide straight-line annual rent of approximately $920,000, representing an estimated yield of over 18.5% with the tenant responsible for all operating expenses."

Upon completion of the construction, which is targeted for November 2020, the CEAG is expected to the be largest cannabis greenhouse cultivation facility in the state of Maine. In addition, Power REIT received an option to acquire an adjacent 3 vacant parcel that is owned by Tenant for $400,000 which provides Power REIT the option to finance additional cultivation space for Sweet Dirt.

David Lesser, Power REIT’s Chairman and CEO, commented, “We are excited to support the efforts of Sweet Dirt as we enter a new market. The Maine market is highly fragmented and is projected for tremendous growth. Power REIT is focused on supporting Sweet Dirt’s efforts to take a leadership role in the Maine Cannabis industry.”

Kristin Pope, Co-Founder of Sweet Dirt commented, “Sweet Dirt is thrilled to have the support of Power REIT as we ramp up production to meet the demand from existing medical cannabis patients and future consumers. The greenhouse will allow us to deliver year-round, organically grown artisanal cannabis to the Maine market.”

Jim Henry, CEO of Sweet Dirt, commented, “Sweet Dirt is preparing to expand our footprint in Maine’s regulated market. This transaction will allow us to focus on cultivation and invest directly into our growth initiatives. The state-of-the-art greenhouse will feature exceptional thermal performance, best- in-class snow and wind load capacity, automated climate control, supplemental lighting and light-deprivation (shade) systems. Power REIT moves us towards our vision of becoming a large-scale producer of the highest quality cannabis in Maine.”

FFO assumptions
The acquisition is immediately accretive to FFO by adding approximately $920,000 of straight-line rent which translates to incremental FFO of approximately $0.48 per share per annum on a run rate basis. Omitting future available capital deployments, this transaction along with the other recently announced greenhouse related transactions should increase FFO per share to approximately $1.40 per year on a run rate basis which compares to $0.56 prior to embarking on our updated business plan in July 2019. Assuming Power REIT deploys its existing remaining capital equally over the next two quarters, the year-end “run-rate” for FFO per share should exceed $1.80 per share, which assumes that the capital is deployed at a 12.5% yield. Similarly, if Power REIT deploys its capital at a rate in-line with recent acquisitions, the year end FFO “run-rate” would exceed $1.90 per share.

Mr. Lesser continued, “By this coming fall upon completion of the CEAG, our tenant will not only have the largest cannabis greenhouse cultivation facility in Maine but will also be the first fully vertically integrated cannabis company with greenhouse cultivation, processing and retail sales. We also look forward to funding the expansion of Sweet Dirt’s cultivation capacity in the near term on an adjacent parcel of land that is owned by Sweet Dirt and for which Power REIT has an option to acquire and then fund the improvements. This should solidify a dominant position in the Maine market for Sweet Dirt. Our existing portfolio of cannabis greenhouse properties are all on track with respect to construction and rent payments. With an extensive acquisition pipeline, we feel optimistic that we will be able to deploy the remainder of the capital currently available for investment in the near term. Cannabis operators currently have limited access to capital sources which means that Power REIT should be able to deploy much needed capital at attractive risk adjusted returns.”

Mr. Lesser concluded, “Since embarking on our new business plan focused on CEAG properties in July 2019, Power REIT has now demonstrated dramatic growth in FFO. Given our relatively small size coupled with the attractive rates of return that Power REIT is investing in CEAG properties, translates to the potential for significant additional growth. At this point, Power REIT trades at a lower discount than typical REITs and yet has growth prospects that are much higher than the REIT market in general. I believe this represents a compelling opportunity for investment that should generate attractive risk adjusted returns.”