On this week’s episode of Trade to Black podcast, we welcome Rob Sechrist, the Co-Founding President of Pelorus Equity Group, a provider of real estate debt financing solutions and specialty-use cannabis mortgage Real Estate Investment Trust (REIT) Fund. Rob joins the program on the heels of The Pelorus Fund registering a 1.12% internal rate of return (IRR) in February—the 57th consecutive month the Fund has returned at least 0.82% IRR.
The performance of The Pelorus Fund was notable as the benchmark AdvisorShares Pure US Cannabis ETF (NYSE: MSOS) fell another ↓2.83% in February, continuing its vast underperformance against the broad market in recent times. While comparing a private lending mortgage REIT against a public cannabis equity ETF is largely incomparable on an apples-to-apples basis, the difference in historical performance is quite dramatic over the past couple of years.
We noted in early January that the Fund outperformed MSOS by 8,458 Bps in 2022 (non-compounded)—a trend that has continued through the first two months of this year. Even when stacked up against a better comparable—publicly-traded cannabis mortgage REIT leader Innovative Industrial Properties (IIPR)—The Pelorus Fund performance is looking superior. IIPR has declined 25.25% YTD and 15.63% in the month of February, largely inline with the challenging forced affecting public cannabis operators.
While investors sometimes conflate the private lending model with the public one, there is a defined difference.
A private lending mortgage Real Estate Investment Trust (REIT) differs from a publicly traded equity REIT in that it raises capital from a select group of accredited investors and lends that money to borrowers in the form of mortgages only. Private lending mortgage REITs are not traded on public stock exchanges and are not subject to the same regulatory requirements as publicly traded REITs or other forms of equity.
In contrast, a publicly traded equity REIT is a company that invests directly into and manages real estate properties and generates revenue by collecting rent from tenants. They typically do so by purchasing the property outright or by forming a partnership or joint venture with other investors or developers to acquire and develop the property. This exposes investors to risk in the decline of property values in an economic downturn, among other things.
As of December 31, 2022, IIPR owned 110 properties comprising an aggregate of approximately 8.6 million rentable square feet (including approximately 1.6 million rentable square feet under development or redevelopment) in 19 states.
As always, Rob’s commentary on the state of U.S. cannabis markets is a listen worthy of your time.
To view the previous Trade To Black Podcast featuring TerrAscend Corp. Executive Chairman, Jason Wild, click here.
