Power REIT closes acquisition and establishes USD26m credit facility
Power REIT has closed an acquisition and entered into a USD26.2 million credit facility.
Power REIT, through a recently formed, wholly owned, indirect subsidiary, has completed the acquisition of approximately 450 acres of land in Kern County, California, near Fresno.
The land is the site for a 60 Megawatt (AC) solar photovoltaic power generation project that is currently under construction and expected to be completed during 2014.
Power REIT's recent acquisitions all relate to solar power generation projects. In each project, Power REIT has acquired the real estate underlying the project, and leases the real estate to the project owner. Power REIT's solar farm tenants typically invest approximately 15-20 times the amount that Power REIT has invested to own the land. The project improvements, paid for by the tenant, are as a practical matter immovable, and so the tenant must pay the rent it owes Power REIT or risk losing much or all of its entire investment. In each project, a power utility has agreed to purchase all of the power generated at the site for 20 years or more. For all these reasons, Power REIT has a high expectation of receiving its projected rents over the lives of the long-term leases.
With the completion of the Kern County Acquisition, approximately 50 per cent of Power REIT's consolidated revenue on a pro forma basis will be generated from its investments in renewable energy projects. The remainder of Power REIT's consolidated revenue is from a legacy asset -- a ground lease entered into in the 1960s with a railroad that operates on land owned by one of Power REIT's subsidiaries, Pittsburgh & West Virginia Railroad.
Power REIT's approach to acquiring property related to solar power generation projects means that, unlike other alternative energy stocks, which often focus on technology, Power REIT represents an opportunity to invest in hard assets that generate stable and predictable cash flows with little or no technology risk, while nevertheless investing in sustainable energy infrastructure.
David Lesser, Power REIT's chairman and CEO, says: "The Kern County acquisition is consistent with Power REIT's objective of acquiring assets on an attractive risk-adjusted return basis that are accretive to Funds From Operations per share. Similar to other recent acquisitions of ours, we believe that the rental payment stream is highly predictable, given that the prospective tenant will pay Power REIT a small fraction of its projected operating cash flow and that the improvements that our tenant has paid for that are located on our land would be uneconomic to relocate. The solar project cash flow is supported by a long-term power purchase agreement with a major regulated utility, which obligates the utility to purchase all of the power from the project. The transaction is immediately accretive to Power REIT's funds from operations and is consistent with Power REIT's strategy intended to create shareholder value. In addition, we are excited to close this transaction with a premier developer of large solar power projects, which helps validate the value proposition that Power REIT brings to renewable energy project developers."
Power REIT recently formed Power REIT Financo, a wholly owned direct subsidiary. Financo has entered into a USD26.2 million credit facility with a major institutional lender. The credit facility is being used to fund a portion of the Kern County Acquisition and will be used to help fund additional acquisitions. It may also be used to refinance, in part, the existing bridge financing that Power REIT received in late 2013 from Hudson Bay Partners, a wholly owned affiliate of Power REIT’s chairman and CEO, David Lesser, in order to make a prior solar project land acquisition. Given the long-term nature of the assets that Power REIT is seeking to acquire, Power REIT has entered into interest rate hedging strategies intended to minimize the risks associated with refinancing and interest rate swings. Such interest rate hedging strategies will likely extend beyond the term of the credit facility so as to protect against interest rate increases during the long-term lease periods of the projects that are financed.
Lesser says: "The credit facility will further improve Power REIT's efficiency with respect to closing and financing additional acquisitions. We now have an established institutional lender which enhances our credibility in the marketplace."
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