Power REIT has acquired a 35-acre property located in Huerfano County, Colorado. "The property currently has multiple greenhouses and support buildings which will be upgraded through a redevelopment plan that Power REIT will fund along with the new construction of additional greenhouse space. Upon completion, the Property will comprise approximately 102,800 square feet of greenhouse and related space," the Power REIT team explains. "Power REIT’s total capital commitment for the project is approximately $3.9 million including the property acquisition cost. The Property also has ample acreage for future expansion which Power REIT intends to finance.
On top of that, the company has entered into a 20-year “triple-net” lease with Walsenburg Cannabis (“WC”) which will operate the cannabis cultivation facility. The Lease covers approximately 22.2 acres of the 35 acre Property. The remaining and undeveloped 12.8 acres is available for future expansions.
The Lease requires WC to pay all property related expenses including maintenance, insurance and taxes. After the initial 20-year term, The Lease provides two, five-year renewal options and has a personal guarantee from WC’s President. Pursuant to the Lease, WC will maintain a medical marijuana license and will operate in accordance with all Colorado and municipal regulations. The Lease also prohibits retail sales from the Property.
The Lease, as structured, is immediately accretive to Core FFO by adding straight-line annual rent of approximately $729,000. This represents an unleveraged Core FFO yield of approximately 18.8% on Power REIT’s invested capital. After an initial deferred rent period, the rental payments enumerated in the Lease provide PropCo with a full return of its invested capital over the next three years after which PropCo receives an approximately 13% yield increasing thereafter at a rate of 3% per annum.
David Lesser, Power REIT’s Chairman and CEO, commented, “The acquisition is consistent with Power REIT’s investment strategy of focusing on sustainability including greenhouse crop cultivation which is less expensive and has a much lower carbon footprint than growing in an industrial property. This Property is positioned to allow WC to compete favorably within the Colorado market by providing both the infrastructure and a configuration that should allow rapid scale-up in a cost-effective manner relative to competing facilities. In addition, the Property has the potential for the significant expansion of the cultivation canopy, which will be implemented with a focus on becoming a low-cost producer of high-quality cannabis.”
“We are excited to have the support of Power REIT to get this project growing, stated Jared Schrader, Walsenburg Cannabis’ President. We believe this property can quickly become a large-scale producer of cannabis and cannabis related products to serve the Colorado market. The Property is subdivided into five parcels that each have local approval for the cultivation of cannabis. This allows the Property to pursue a rapid growth plan given the nature of Colorado cannabis licensing which is based on a limited plant count initially per property. Once performance is demonstrated to the regulators, each property will have the potential to “tier-up” and add more plants. In addition, WC is focused on a “speed to revenue” approach given the start of operations in the spring growing season."