An American real-estate investment trust is looking to double-down on high-yield properties servicing the cannabis industry.
Power REIT (NYSE American: PW) announced Monday it had closed on a $15.5 million round of financing to acquire more incoming-producing properties.
Through a newly formed subsidiary, the New York-based trust issued long-term fixed rate bonds with an interest rate of 4.62 per cent that will be paid over the financing’s lifetime of 35 years, until 2054.
Other REITs in the cannabis sector have performed well, despite the sagging market, which analysts say is in part due to cash-starved weed companies selling off their properties to generate capital.
In July 2019, Power REIT announced an updated business plan that would focus on acquiring buildings suited for indoor cannabis cultivation — what it calls “controlled environment agriculture.” As part of that release, the company said it was acquiring two facilities in southern Colorado for the cultivation of medical cannabis.
The two properties make up a total of 19,000 square-feet of cultivation and processing space, and are leased to a licensed cannabis producer. These acquisitions created significant growth in its core funds from operations for the last quarter, the company said.
Power REIT said it believes it can create significant earnings growth by acquiring more of this type of property, and has an “active pipeline” of potential acquisitions. The growth potential is a result of the high yield relative to other traditional asset types combined with REITs relatively small market capitalization, the company said.
“This financing is an important next step in the execution of our recently announced business plan,” CEO David Lesser said in the release. “We are pursuing an active pipeline of acquisition opportunities and also are engaged in active discussions related to the expansion of our existing controlled environment agriculture properties.”
The company’s portfolio is divided into three industries: controlled environment agriculture (cannabis), solar farm land and railroads. By rent breakdown, cannabis properties make up 15 per cent, solar farm land 43 per cent and railroad property 42 per cent.
According to the company’s website, cannabis properties generate 15 per cent of the rent with eight per cent of its total gross book value. That figure contrasts with solar farm land generating 43 per cent of total rent from its gross book value of 52 per cent of the company’s portfolio.