**Forward: We promise we aren’t exclusively a Cannabis REIT advertising platform. But, akin to when you start pulling on a piece of yard or fabric in your jeans, sometimes more material can come out than you expect.
I Have a Rhetorical Question for You
What happens when a super small real estate company, (that only owns $20 million in assets) with a valuation of $16 million, decides to branch out and buy cannabis real estate?
POWER REIT: What is it?
Power Real Estate Investment Trust (REIT) used to be worth about $5, more than Amy Schumer’s standup career. As of May 2019, it owned $20 million in assets, comprised of 112 miles of railroad and some solar farm real estate; it collected about $2 in rent, and it hadn’t acquired a single asset since April 2014. Now it’s worth $11.30 a share and has almost doubled in less than a year. As you can see below, it was fluctuating but never really substantially moved. So, what happened and can it continue?
Well, around the time I marked, July 2019, after a costly litigation with the railroad tenant, the CEO decided to start acquiring properties again. David Lessor, the aforementioned, pivoted industries and bought two cannabis properties in July and another two in February. The company has publicly declared that it has a new focus on investing in greenhouse properties that will immediately affect their bottom line. You now have a company that in the last six months has declared it has a new focus, has acquired four new properties, and has taken out a $15 million loan to buy more.
In short, you have a real estate company that owns railroad lines, solar farm land, and four medical marijuana properties. The new leases are triple net leases (meaning the lessors pay for repairs, taxes, and insurance, etc) with rental rates above 15%. Meaning, they’re banking on the new deals that they’re focusing on and increasing rates 3%.
Growth
REIT’s make money buying assets and renting them to other companies or individuals. Through the railroad lines and solar land, Power REIT would collect around $2 million in rent annually. Then, as of the last six months it closed a few deals that have grown the forward rent to $3.15 million. This is revenue growth of over 50% in six months. Now, that’s a small amount of revenue you might say and you’d be correct. However, if the CEO keeps signing triple net leases, that small $20 million company can easily grow to a $300 million small cap and beyond.
Power REIT, with only its current properties, will generated FFO per share of $1.11 for 2020. However, with the $15 million loan it plans on acquiring additional properties and the CEO expects with those assets the company will make $1.50 per share for the next year.
SEC Filing: Paragraph 3, third line if you don’t believe me.
PW: Investor Presentation Data
From PW’s Feb 2020 Investor Presentation
The small text below the table basically says “Our forward FFO is $1.11 per share but if we invest the rest of our money and we close on our signed deals we’ll have forward FFO of $1.50, which is really cool” (paraphrased).
Valuation
Based on the current price:
- Market Cap of $21 million
- Book Value is $12.78 per share, $24 million Net Asset Value (greater than the market cap!)
- Forward FFO is $1.50+ per share (assuming management even halfway delivers)
- The price to forward FFO is 7.5 for the fiscal year 2020.
Average 2020 REIT statistics:
- Price to Book per share: 2.1 (PW = .88)
- Price to forward FFO: over 20 (PW = 7.5)
As you can see, PW is extremely undervalued, and if it shows that it can grow effectively in the next year or two then its evaluation can easily increase to the average REIT evaluations.
Sounds too Good to be True
You might be saying to yourself… there’s no way a company can be valued at half of the industry average with the ability to grow 50% year over year. Normally you’d be correct. However, this company is so small that it has zero press coverage. All of the information on public domains isn’t nearly up to date, and most of the this information came directly from their website and from SEC filings. We put a lot of effort in to find this up to date information is what it came down to. Institutions are starting to create small positions but they only own 17% of the company right now (average is way over 50% for REIT’s). In short, this company is expanding quickly and it is vastly undervalued, but it’s so small that funds can’t invest in it yet.
It’s risky don’t get me wrong, but it’s not a hard business to operate with triple net leases and the growth can easily be kept up. Especially given the size of acquisitions PW needs to scale. It might take a few years, but this can easily be a multi-multi-bagger.
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***Here at Fundasy, we are long with PW and like to put our money where our mouth is. We strongly recommend that any investor do their own research before investing and not rely on strictly our data for their investment decisions.