Item 8.01. Other Events -
Update Regarding Marengo Township, Michigan Greenhouse Cultivation Facility
Power REIT, through a wholly owned subsidiary, PW MI CanRE Marengo, ("PW
Marengo") owns a 556,000 square foot high-tech greenhouse located in Marengo
Township, Michigan (the "Property"). Power REIT believes that once operational,
this will be the largest cannabis cultivation facility in Michigan and one of
the largest greenhouse cannabis cultivation facilities in the United States.
Power REIT also believes that given the scale combined with the fact that the
Property is a greenhouse will position our tenant, Marengo Cannabis LLC (the
"Tenant"), to compete favorably as a low-cost producer of high-quality cannabis.
This is especially important as prices for cannabis in most markets have
compressed recently. Power REIT's Tenant is a wholly owned subsidiary of
Millennium Sustainable Ventures Corp. (ticker: MILC).
As part of securing cannabis licenses from the Michigan Cannabis Regulatory
Agency ("CRA"), a Certificate of Occupancy ("CO") must be submitted where
applicable. Pursuant to the Marengo Township zoning map, the Property is zoned
Agricultural and was given a Marijuana Overlay, which according to the Marengo
Township Ordinance does not change the underlying zoning. As such, the Property
does not require a CO and the CRA agreed in writing to accept a simple two
sentence letter (the "CO Letter") as an alternative to providing a CO. PW
Marengo pursued the agreed upon CO Letter from Marengo Township which was
initially unwilling to cooperate which ultimately led PW Marengo to initiate
litigations against Marengo Township.
On July 8, 2022, PW Marengo ultimately secured the CO Letter from the Marengo
Township Supervisor confirming that the property is currently zoned Agricultural
and does not need a CO. The CO Letter is in the form that the CRA previously
agreed to accept. Based on the receipt of the CO Letter, the complete licensing
application has now been submitted to the CRA. While the submission of the of
the licensing application to CRA has been significantly delayed due to the
issues with Marengo Township, we have now overcome a significant hurdle in the
licensing process. Nevertheless, there is no certainty as to the ability to
ultimately secure the licenses from the CRA as well as how long the process will
take which will allow our Tenant to commence operations.
As previously announced, PW Marengo amended the lease with its Tenant, to push
out rent to Q1 2023 to reflect the uncertainty around the timing of licensing.
The amendment was structured to maintain the same level of straight-line
accounting for rent for Power REIT. However, given the uncertainty around
licensing, Power REIT currently is not recognizing rental income associated with
the Property. Once there is more certainty around the timing of the ability of
the tenant to pay rent, Power REIT expects to resume recognition of revenue for
the Property. The Property represents the largest single asset within our
portfolio in terms of income. The annual straight-line rent based on the amended
lease is $5,119,943 which translates to incremental Core FFO per share of
approximately $0.38 per quarter and $1.52 per year on a per share basis based on
3,367,261 shares outstanding. This represents dramatic incremental FFO per share
relative to the $0.40 reported for Q1 2022.
In terms of the Michigan cannabis market, wholesale prices to date do not appear
to have compressed as significantly as other states such as California,
Colorado, and Oklahoma. We continue to believe that we acquired this property at
an attractive basis and that our Tenant can be a high quality, low-cost producer
in the developing Michigan market.
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