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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

001-36312

(Commission File Number)

 

POWER REIT

(Exact name of registrant as specified in its charter)

 

Maryland   45-3116572

(State or other jurisdiction of

incorporation or organization)

  (I.R.S. Employer Identification No.)
     
301 Winding Road, Old Bethpage, NY   11804
(Address of principal executive offices)   (Zip Code)

 

(212) 750-0371

(Registrant’s telephone number, including area code)

 

  N/A  
  (Former name, former address and former fiscal year, if changed since last report)  

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Shares   PW   NYSE American
         
7.75% Series A Cumulative Redeemable Perpetual Preferred Stock, Liquidation Preference $25 per Share   PW.PRA   NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [X]   Smaller reporting company [X]
Emerging growth company [  ]      

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

1,916,139 common shares, $0.001 par value, outstanding at October 28, 2020.

 

 

 

   
 

 

TABLE OF CONTENTS

 

    Page No.
       
PART I – FINANCIAL INFORMATION
       
Item 1 – Financial Statements (Unaudited) 3
  Consolidated Balance Sheets (Unaudited) 3
  Consolidated Statements of Operations (Unaudited) 4
  Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) 5
  Consolidated Statements of Cash Flows (Unaudited) 6
  Notes to Unaudited Consolidated Financial Statements 7
     
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
       
Item 3 – Quantitative and Qualitative Disclosures About Market Risk 20
       
Item 4 – Controls and Procedures 20
       
PART II – OTHER INFORMATION
       
  Item 1 – Risk Factors 21
       
  Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds 21
       
  Item 3 – Defaults Upon Senior Securities 21
       
  Item 4 – Mine Safety Disclosures 21
       
  Item 5 – Other Information 21
       
  Item 6 – Exhibits 21
       
SIGNATURE   22

 

 2 
 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

 

POWER REIT AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   (Unaudited)     
   September 30, 2020   December 31, 2019 
ASSETS          
Land  $8,108,040   $6,928,644 
Greenhouse cultivation facilities, net of accumulated depreciation   3,090,281    1,619,687 
Construction in progress - greenhouse cultivation facilities   6,686,138    - 
Net investment in direct financing lease - railroad   9,150,000    9,150,000 
Total real estate assets   27,034,459    17,698,331 
           
Cash and cash equivalents   7,639,392    15,842,504 
Prepaid expenses   69,764    14,626 
Intangible assets, net of accumulated amortization   3,411,599    3,589,453 
Deferred rent receivable   1,132,894    546,187 
Other assets   16,976    16,700 
TOTAL ASSETS  $39,305,084   $37,707,801 
           
LIABILITIES AND EQUITY          
Deferred revenue  $66,569   $29,342 
Tenant security deposit   893,872    114,378 
Accounts payable   70,394    54,993 
Accrued interest   79,690    84,313 
Current portion of long-term debt, net of unamortized discount   596,089    564,682 
Long-term debt, net of unamortized discount   23,248,386    23,797,191 
TOTAL LIABILITIES   24,955,000    24,644,899 
           
Series A 7.75% Cumulative Redeemable Perpetual Preferred Stock Par Value $25.00 (175,000 shares authorized; 144,636 issued and outstanding as of September 30, 2020 and December 31, 2019)   3,492,149    3,492,149 
           
Equity:          
Common Shares, $0.001 par value (100,000,000 shares authorized; 1,916,139 shares issued and outstanding at September 30, 2020 and 1,872,939 at December 31, 2019)   1,916    1,873 
Additional paid-in capital   12,010,895    11,821,486 
Accumulated deficit   (1,154,876)   (2,252,606)
Total Equity   10,857,935    9,570,753 
           
TOTAL LIABILITIES AND EQUITY  $39,305,084   $37,707,801 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 3 
 

 

POWER REIT AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2020   2019   2020   2019 
REVENUE                    
Lease income from direct financing lease – railroad  $228,750   $228,750   $686,250   $686,250 
Rental income   882,625    334,532    2,121,268    859,587 
Misc. income   4,211    589    70,578    8,238 
TOTAL REVENUE   1,115,586    563,871    2,878,096    1,554,075 
                     
EXPENSES                    
Amortization of intangible assets   59,285    59,285    177,854    177,855 
General and administrative   145,868    94,144    399,368    312,192 
Property tax   5,960    5,537    20,617    16,650 
Depreciation Expense   39,767    17,711    96,029    17,711 
Interest expense   288,642    113,501    876,324    345,271 
TOTAL EXPENSES   539,522    290,178    1,570,192    869,679 
                     
NET INCOME   576,064    273,693    1,307,904    684,396 
                     
Preferred Stock Dividends   (70,058)   (70,058)   (210,174)   (210,174)
                     
NET INCOME ATTRIBUTABLE TO COMMON SHARES  $506,006   $203,635   $1,097,730   $474,222 
                     
Income Per Common Share:                    
Basic  $0.26   $0.11   $0.57   $0.25 
Diluted   0.25    0.11    0.56    0.25 
                     
Weighted Average Number of Shares Outstanding:                    
Basic   1,915,200    1,872,939    1,909,151    1,871,093 
Diluted   1,984,727    1,885,488    1,967,481    1,871,093 
                     
Cash dividend per Series A Preferred Share  $0.48   $0.48   $1.45   $1.45 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 4 
 

 

POWER REIT AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Quarters Ended September 30, 2020 and 2019

(Unaudited)

 

           Additional       Total 
   Common Shares   Paid-in   Accumulated   Shareholders’ 
   Shares   Amount   Capital   Deficit   Equity 
                     
Balance at December 31, 2019   1,872,939   $1,873   $11,821,486   $(2,252,606)  $9,570,753 
Net Income   -    -    -    252,087    252,087 
Cash Dividends on Preferred Stock   -    -    -    (70,058)   (70,058)
Stock-Based Compensation   40,000    40    75,118    -    75,158 
Balance at March 31, 2020   1,912,939   $1,913   $11,896,604   $(2,070,577)  $9,827,940 
Net Income   -    -    -    479,753    479,753 
Cash Dividends on Preferred Stock   -    -    -    (70,058)   (70,058)
Stock-Based Compensation   -    -    48,133    -    48,133 
Balance at June 30, 2020   1,912,939   $1,913   $11,944,737   $(1,660,882)  $10,285,768 
Net Income   -    -    -    576,064    576,064 
Cash Dividends on Preferred Stock   -    -    -    (70,058)   (70,058)
Stock-Based Compensation   3,200    3    66,158    -    66,161 
Balance at September 30, 2020   1,916,139   $1,916   $12,010,895   $(1,154,876)  $10,857,935 

 

          Additional       Total 
   Common Shares   Paid-in   Accumulated   Shareholders’ 
   Shares   Amount   Capital   Deficit   Equity 
                     
Balance at December 31, 2018   1,870,139   $1,870   $11,616,154   $(2,919,268)  $8,698,756 
Net Income   -    -    -    197,245    197,245 
Cash Dividends on Preferred Stock   -    -    -    (70,058)   (70,058)
Stock-Based Compensation   -    -    63,954    -    63,954 
Balance at March 31, 2019   1,870,139   $1,870   $11,680,108   $(2,792,081)  $8,889,897 
Net Income   -    -    -    213,458    213,458 
Cash Dividends on Preferred Stock   -    -    -    (70,058)   (70,058)
Stock-Based Compensation   2,800    3    47,124    -    47,127 
Balance at June 30, 2019   1,872,939   $1,873   $11,727,232   $(2,648,681)  $9,080,424 
Net Income   -    -    -    273,693    273,693 
Cash Dividends on Preferred Stock   -    -    -    (70,058)   (70,058)
Stock-Based Compensation   -    -    47,127    -    47,127 
Balance at September 30, 2019   1,872,939   $1,873   $11,774,359   $(2,445,046)  $9,331,186 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 5 
 

 

POWER REIT AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Nine Months Ended September 30, 
   2020   2019 
Operating activities          
Net Income  $1,307,904   $684,396 
           
Adjustments to reconcile net income to net cash provided by operating activities:          
Amortization of intangible assets   177,854    177,855 
Amortization of debt costs   25,582    18,892 
Stock-based compensation   189,452    158,208 
Depreciation   96,029    17,711 
           
Changes in operating assets and liabilities          
Accounts payable, related party   -    (1,374)
Other assets   (276)   624 
Deferred rent receivable   (586,707)   - 
Prepaid expenses   (55,138)   (37,004)
Accounts payable   15,401    19,683 
Security deposit   779,494    114,378 
Accrued interest   (4,623)   (4,211)
Deferred revenue   37,227    36,583 
Net cash provided by operating activities   1,982,199    1,185,741 
           
Investing activities          
Cash paid for land and cultivation facilities   (2,746,019)   (1,791,565)
Cash paid for cultivation facilities construction in progress   (6,686,138)   - 
Net cash used in investing activities   (9,432,157)   (1,791,565)
           
Financing Activities          
Principal payment on long-term debt   (542,980)   (381,872)
Cash dividends paid on preferred stock   (210,174)   (210,174)
Net cash used in financing activities   (753,154)   (592,046)
           
Net increase (decrease) in cash and cash equivalents   (8,203,112)   (1,197,870)
           
Cash and cash equivalents, beginning of period  $15,842,504   $1,771,011 
           
Cash and cash equivalents, end of period  $7,639,392   $573,141 
           
Supplemental disclosure of cash flow information:          
Interest paid  $846,119   $330,590 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 6 
 

 

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

1. GENERAL INFORMATION

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company, as defined below, these unaudited consolidated financial statements include all adjustments necessary to present fairly the information set forth herein. All such adjustments are of a normal recurring nature. Results for interim periods are not necessarily indicative of results to be expected for a full year.

 

These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes included in our latest Annual Report on Form 10-K filed with the SEC on March 30, 2020, as well as the 10-K/A filed on July 17, 2020.

 

Power REIT (the “Registrant” or the “Trust”, and together with its consolidated subsidiaries, “we”, “us”, the “Company” or “Power REIT”, unless the context requires otherwise) is a Maryland-domiciled real estate investment trust (a “REIT”) that holds, develops, acquires and manages real estate assets related to transportation, alternative energy infrastructure and Controlled Environment Agriculture (CEA) in the United States.

 

The Trust is structured as a holding company and owns its assets through twelve wholly-owned, special purpose subsidiaries that have been formed in order to hold real estate assets, obtain financing and generate lease revenue. As of September 30, 2020, the Trust’s assets consisted of approximately 112 miles of railroad infrastructure and related real estate which is owned by its subsidiary Pittsburgh & West Virginia Railroad (“P&WV”), approximately 601 acres of fee simple land leased to a number of utility scale solar power generating projects with an aggregate generating capacity of approximately 108 Megawatts (“MW”) and approximately 34 acres of land with approximately 164,000 sf of existing or under construction greenhouses leased to six separate medical cannabis operators. Power REIT is actively seeking to grow its portfolio of real estate related to CEA for food and cannabis production.

 

7
 

 

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

During the nine months ended September 30, 2020, the Trust paid quarterly dividends of approximately $210,000 ($0.484375 per share) on Power REIT’s 7.75% Series A Cumulative Redeemable Perpetual Preferred Stock.

 

The Trust was formed as part of a reorganization and reverse triangular merger of P&WV that closed on December 2, 2011. P&WV survived the reorganization as a wholly-owned subsidiary of the Trust.

 

The Trust has elected to be treated for tax purposes as a REIT, which means that it is exempt from U.S. federal income tax if a sufficient portion of its annual income is distributed to its shareholders, and if certain other requirements are met. In order for the Trust to maintain its REIT qualification, at least 90% of its ordinary taxable annual income must be distributed to shareholders.

 

8
 

 

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).”

 

Principles of Consolidation

 

The accompanying consolidated financial statements include Power REIT and its wholly-owned subsidiaries. All intercompany balances have been eliminated in consolidation.

 

Income per Common Share

 

Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted net income per common share is computed similar to basic net income per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The dilutive effect of the Company’s options is computed using the treasury stock method.

 

The following table sets forth the computation of basic and diluted Income per Share:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2020   2019   2020   2019 
                 
Numerator:                    
Net Income  $576,064   $273,693   $1,307,904   $684,396 
Preferred Stock Dividends   (70,058)   (70,058)   (210,174)   (210,174)
Numerator for basic and diluted EPS - income available to common Shareholders  $506,006   $203,635   $1,097,730   $474,222 
                     
Denominator:                    
Denominator for basic EPS - Weighted average shares   1,915,200    1,872,939    1,909,151    1,871,093 
Dilutive effect of options   69,527    12,549    58,330    - 
Denominator for diluted EPS - Adjusted weighted average shares   1,984,727    1,885,488    1,967,481    1,871,093 
                     
Basic income per common share  $0.26   $0.11   $0.57   $0.25 
Diluted income per common share  $0.25   $0.11   $0.56   $0.25 

 

Fair Value

 

Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Trust measures its financial assets and liabilities in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

 

  Level 1 – valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow a company to sell its ownership interest back at net asset value on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities or funds.

 

9
 

 

  Level 2 – valuations for assets and liabilities traded in less active dealer, or broker markets, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active. Level 2 includes U.S. Treasury, U.S. government and agency debt securities, and certain corporate obligations. Valuations are usually obtained from third party pricing services for identical or comparable assets or liabilities.
     
  Level 3 – valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

 

In determining fair value, the Trust utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considering counterparty credit risk.

 

The carrying amounts of Power REIT’s financial instruments, including cash and cash equivalents, deposits, and accounts payable approximate fair value because of their relatively short-term maturities. The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates. There are no financial assets and liabilities carried at fair value on a recurring basis as of September 30, 2020 and December 31, 2019.

 

3. ACQUISITIONS

 

On January 30, 2020, Power REIT, through a newly formed wholly owned subsidiary, PW CO CanRE Mav 14, LLC, completed the acquisition of a greenhouse property in southern Colorado (“Maverick 14”). Maverick 14, 5.54 acres with an existing greenhouse and processing facility totaling approximately 9,300 square feet was acquired for $850,000. The purchase price plus acquisition expenses of $10,424 was paid with existing working capital. As part of the transaction, the Trust agreed to fund the construction of 15,120 square feet of greenhouse space for $1,058,400 and the tenant has agreed to fund the construction of approximately 2,520 additional square feet of head-house/processing space on the property. Accordingly, the Trust’s total capital commitment is $1,908,400 plus acquisition expenses. As of September 30, 2020, the total construction in progress that was funded by Power REIT is approximately $944,000.

 

On February 20, 2020, through a newly formed wholly owned subsidiary, PW CO CanRE Sherman 6, LLC, Power REIT completed the acquisition of a property in southern Colorado (“Sherman 6”). Sherman 6, 5.0 acres of vacant land, was acquired for $150,000 plus $724 in acquisition expenses. As part of the transaction, the Trust agreed to fund the construction of 15,120 square feet of greenhouse space and 8,776 square feet of head-house/processing space on the property for $1,693,800. On August 25, 2020, Power REIT amended the lease with its tenant of Sherman 6, making an additional $151,301 available to fund the construction of an additional 2,520 square feet of head-house/processing space. Accordingly, the Trust’s total capital commitment is $1,995,101 plus acquisition costs. As of September 30, 2020, the total construction in progress that was funded by Power REIT is approximately $1,394,000.

 

On March 19, 2020, Power REIT, through a newly formed wholly owned subsidiary, PW CO CanRE Mav 5, LLC completed the acquisition of a property in southern Colorado (“Maverick 5”). Maverick 5, 5.2 acres of vacant land, was acquired for $150,000. As part of the transaction, the Trust has agreed to fund the construction of 5,040 square feet of greenhouse space and 4,920 square feet of head-house/processing space on the property for $868,125. On May 1, 2020, the Trust amended the lease with its tenant of Maverick 5, making an additional $340,539 to fund the construction of an additional 5,040 square feet of greenhouse space at the property. Accordingly, Power REIT’s total capital commitment is $1,358,664. As of September 30, 2020, the total construction in progress that was funded by Power REIT is approximately $979,000.

 

10
 

  

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

On May 15, 2020, through a newly formed wholly owned subsidiary, PW ME CanRE SD, LLC, Power REIT completed the acquisition of a 3.04 acre property (the “495 Property”) in York County, Maine for $1,000,000. The property includes a 32,800 square-foot greenhouse and 2,800 square foot processing/distribution building that are both under active construction. As part of the acquisition, Power REIT reimbursed its tenant, Sweet Dirt, $950,000 related to the partially built greenhouse and processing/distribution building and will fund up to approximately $2.97 million of additional costs to complete the construction. Accordingly, Power REIT’s total investment in the property is approximately $4.92 million plus acquisition expenses of $45,500. As of September 30, 2020, the total construction in progress that was funded by Power REIT is approximately $3,103,000.

 

On September 17, 2020, through the wholly owned subsidiary, PW ME CanRE SD, LLC, Power REIT completed the acquisition of a property (the “505 Property”) in York County, Maine by exercising its option received at the time of the 495 Property acquisition. The 505 Property is a 3.58 acre property purchased for $400,000 plus $2,110 in closing costs and is adjacent to the 495 Property. As part of the transaction, Power REIT agreed to fund the construction of an additional 9,900 square feet of processing space and renovate an existing 2,738 square foot building for approximately $1.56 million. Accordingly, Power REIT ‘s total investment in the property is approximately $1.96 million. As of September 30, 2020, the total construction in progress that was funded by Power REIT is approximately $88,000.

 

On September 18, 2020, through a newly formed wholly owned subsidiary, PW CO CanRE Tam 7, LLC, Power REIT completed the acquisition of a property in Southern Colorado (“Tamarack 7”). Tamarack 7, 4.32 acres of vacant land, was acquired for $150,000 plus $353 in acquisition expenses. As part of the transaction, the Trust agreed to fund the construction of an 18,000 square feet greenhouse and processing facility for approximately $1.21 million. Accordingly, Power REIT’s total capital commitment is approximately $1.36 million plus acquisition costs. As of September 30, 2020, the total construction in progress that was funded by Power REIT is approximately $178,000.

 

The acquisitions described above are accounted for as asset acquisitions under ASC 805-50. Power REIT has established a depreciable life for the property improvements of 20 years.

 

Concurrent with the closing on the acquisitions, Power REIT entered into leases with tenants that are licensed for the production of medical cannabis cultivation at the facilities. The combined straight-line annual rent from these six acquisitions and two expansions are approximately $2,541,000 Each tenant is responsible for paying all expenses related to the properties including maintenance, insurance and taxes. The term of each lease is 20 years and provides two options to extend for additional five-year periods. The leases also have financial guarantees from affiliates of the tenants.

 

11
 

 

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

The following table summarized the allocation of the purchase consideration for Maverick 14 based on the fair values of the assets acquired:

 

Land  $150,000 
Assets subject to depreciation:     
Improvements (Greenhouses / Processing Building)   710,424 
      
Total Assets Acquired  $860,424 

 

The following table summarizes the allocation of the purchase considerations for Sweet Dirt based on the fair values of the assets acquired:

 

   495 Property   505 Property 
         
Land  $267,011   $312,385 
           
Construction in Progress   1,682,989    87,615 
           
Total Assets Acquired  $1,950,000   $400,000 

 

4. LONG-TERM DEBT

 

On November 6, 2015, PWRS, one of the subsidiaries of the Trust, borrowed $10,150,000 pursuant to a bond offering (the “PWRS Bonds”). The PWRS Bonds are secured by land and intangibles owned by PWRS and have a total obligation of $10,150,000. The PWRS Bonds carry a fixed annual interest rate of 4.34% and matures in 2034. During 2015, the Trust capitalized approximately $441,000 of expenses related to the PWRS Bonds of which approximately $97,000 was paid in cash and approximately 344,000 was incurred through issuance of debt. This amount is amortized over the life of the PWRS Bonds. As of September 30, 2020, and December 31, 2019, the balance of the PWRS Bonds was approximately $8,178,000 (net of unamortized debt costs of approximately $308,000) and $8,538,000 (net of unamortized debt costs of approximately $325,000), respectively.

 

On July 5, 2013, PWSS, one of the subsidiaries of the Trust, borrowed $750,000 from a regional bank (the “PWSS Term Loan”). The PWSS Term Loan carries a fixed interest rate of 5.0%, a term of 10-years and amortizes based on a twenty-year principal amortization schedule. In addition to being secured by PWSS’ real estate assets, the term loan is secured by a parent guarantee from the Trust. The balance of the PWSS Term Loan as of September 30, 2020 and December 31, 2019 is approximately $558,000 (net of approximately $7,500 of capitalized debt costs which are being amortized over the life of the financing) and $579,000 (net of approximately $9,500 of capitalized debt costs which are being amortized over the life of the financing), respectively.

 

On December 31, 2012, as part of the Salisbury land acquisition, PWSS assumed existing municipal financing (“Municipal Debt”). The Municipal Debt has approximately 11 years remaining. The Municipal Debt has a simple interest rate of 5.0% that is paid annually, with the next payment due February 1, 2021. The balance of the Municipal Debt as of September 30, 2020 and December 31, 2019 is approximately $70,000 and $77,000 respectively.

 

12
 

 

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

On November 25, 2019, Power REIT, through a newly formed wholly owned subsidiary, completed a financing that is intended to provide capital for acquisition of additional properties on an accretive basis. The financing is in the form of long-term fixed rate bonds with gross proceeds of $15,500,000. The bonds carry a fixed interest rate of 4.62% and fully amortize over the life of the financing which matures in 2054 (35 years). The bonds are fully secured by the equity interest in Power REIT’s indirect wholly owned subsidiary – PWV. The total debt issuance costs of approximately $312,200 are amortized over the life of the financing. The balance of the loan as of September 30, 2020 and December 31, 2019 is $15,038,000 (net of approximately $305,000 of capitalized debt costs) and 15,168,000 (net of approximately $311,000 of capitalized debt costs).

 

The approximate amount of principal payments remaining on Power REIT’s long-term debt as of September 30, 2020 is as follows for the subsequent years ended December 31:

 

   Total Debt 
2020 (three months remaining)  $54,879 
2021   635,502 
2022   675,374 
2023   1,168,408 
2024   715,777 
Thereafter   21,215,106 
Long term debt  $24,465,046 

 

5. LEASES

 

Information as Lessor Under ASC Topic 842

 

To generate positive cash flow, as a lessor, the Trust leases its facilities to tenants in exchange for payments. The Trust’s leases for its railroad, solar farms and greenhouse cultivation facilities have an average lease term ranging between 20 and 99 years. Payments from the Trust’s leases are recognized on a straight-line basis over the terms of the respective leases. Total revenue from its leases recognized for the nine months ended September 30, 2020 is approximately $2,808,000.

 

13
 

 

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

The aggregate annual cash to be received by the Trust on all leases related to its portfolio as of September 30, 2020 is as follows for the subsequent years ended December 31:

 

   Total 
     
2020 (three months remaining)  $786,855 
2021   6,474,472 
2022   7,472,013 
2023   7,016,607 
2024   4,559,310 
Thereafter   88,549,223 
Total  $114,858,480 

 

6. EQUITY AND LONG-TERM COMPENSATION

 

Summary of Stock Based Compensation Activity – Options

 

The summary of stock based compensation activity for the nine months ended September 30, 2020, with respect to the Trust’s stock options, was as follows:

 

Summary of Activity - Options

 

       Weighted     
   Number of   Average   Aggregate 
   Options   Exercise Price   Intrinsic Value 
Balance as of December 31, 2019   106,000    7.96    - 
Plan Awards   -    -    - 
Options Exercised   -    -    - 
Balance as of September 30, 2020   106,000    7.96    1,257,160 
Options vested at September 30, 2020   106,000    7.96    1,257,160 

 

The weighted average remaining term of the options is approximately 1.86 years.

 

14
 

 

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

Summary of Plan Activity – Restricted Stock

 

The summary of Plan activity for the nine months ended September 30, 2020, with respect to the Trust’s restricted stock, was as follows:

 

Summary of Activity - Restricted Stock

 

   Number of   Weighted 
   Shares of   Average 
   Restricted   Grant Date 
   Stock   Fair Value 
Balance as of December 31, 2019   24,033    6.14 
Plan Awards   43,200    9.61 
Restricted Stock Vested   (24,767)   7.65 
Balance as of September 30, 2020   42,466    8.79 

 

Stock-based Compensation

 

During the first nine months of 2020, the Trust recorded approximately $189,000 of non-cash expense related to restricted stock and options granted compared to approximately $158,000 for the first nine months of 2019. As of September 30, 2020, there was approximately $373,000 of total unrecognized share-based compensation expense, which expense will be recognized through the first quarter of 2023. The Trust does not currently have a policy regarding the repurchase of shares on the open market related to equity awards and does not currently intend to acquire shares on the open market.

 

Power REIT’s 2020 Equity Incentive Plan was adopted by the Board on May 27, 2020 and approved by the shareholders on June 24, 2020. It provides for the grant of the following awards: (i) Incentive Stock Options; (ii) Nonstatutory Stock Options; (iii) SARs; (iv) Restricted Stock Awards; (v) RSU Awards; (vi) Performance Awards; and (vii) Other Awards. The Plan’s purpose is to secure and retain the services of Employees, Directors and Consultants, to provide incentives for such persons to exert maximum efforts for the success of the Trust and to provide a means by which such persons may be given an opportunity to benefit from increases in value of the common Stock through the granting of awards. As of September 30, 2020, the aggregate number of shares of Common Stock that may be issued pursuant to outstanding awards is currently 235,917.

 

Preferred Stock Dividends

 

During the first nine months of 2020, the Trust paid a total of approximately $210,000 of dividends to holders of Power REIT’s Series A Preferred Stock.

 

7. RELATED PARTY TRANSACTIONS

 

The Trust and its subsidiaries have hired Cohen, LLP (“Morrison Cohen”) as their legal counsel with respect to general corporate matters and the litigation with NSC. The spouse of the Trust’s Chairman, CEO, Secretary and Treasurer is a partner at Morrison Cohen. During the nine months ended September 30, 2020, Power REIT (on a consolidated basis) did not pay any legal fees and costs to Morrison Cohen.

 

15
 

 

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

A wholly-owned subsidiary of Hudson Bay Partners, LP (“HBP”), an entity associated with the CEO of the Company, David Lesser, provides the Trust and its subsidiaries with office space at no cost. Effective September 2016, the Board of Trustees approved reimbursing an affiliate of HBP $1,000 per month for administrative and accounting support based on a conclusion that it would pay more for such support from a third party. Effective January 1, 2020, the Board of Trustees approved increasing the amount paid to HBP to $1,750 per month based on an increased work level and the conclusion that it would pay more for such support from an unaffiliated third party for the same functions. On July 1, 2020, the Board of Trustees approved increasing the amount paid to HBP to $2,500 per month based on an increased work level and the conclusion that it would pay more for such support from an unaffiliated third party for the same functions. A total of $18,000 was paid pursuant to this arrangement during the first nine months ended September 30, 2020 compared to $9,000 paid during the first nine months of 2019.

 

Under the Trust’s Declaration of Trust, the Trust may enter into transactions in which trustees, officers or employees have a financial interest, provided however, that in the case of a material financial interest, the transaction is disclosed to the Board of Trustees or the transaction shall be fair and reasonable. After consideration of the terms and conditions of the retention of Morrison Cohen described herein, and the reimbursement to HBP described herein, the independent trustees approved such arrangements having determined such arrangement are fair and reasonable and in the interest of the Trust.

 

8. SUBSEQUENT EVENTS

 

On October 16, 2020, the Registrant declared a quarterly dividend of $0.484375 per share on Power REIT’s 7.75% Series A Cumulative Redeemable Perpetual Preferred Stock payable on December 15, 2020 to shareholders of record on November 15, 2020.

 

On October 15, 2020, through a newly formed wholly owned subsidiary, PW CO CanRE MF, LLC (“Propco”), Power REIT completed the acquisition of two properties in southern Colorado (the “MF Properties”). One parcel is 2.37 acres and the other parcel is 2.09 acres. The purchase price plus acquisition expenses of $150,513 was paid with existing working capital. As part of the transaction, the Trust agreed to fund the construction of a 33,744 square foot greenhouse and processing facility for a total capital commitment of approximately $3,060,000.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “Report”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” “plan,” “assume” or other similar expressions, or negatives of those expressions, although not all forward-looking statements contain these identifying words. All statements contained in this Report regarding our future strategy, future operations, projected financial position, estimated future revenues, projected costs, future prospects, the future of our industries and results that might be obtained by pursuing management’s current or future plans and objectives are forward-looking statements.

 

You should not place undue reliance on any forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control, including those identified below, under Part II, Item 1A. “Risk Factors” and elsewhere in this Report, and those identified under Part I, Item 1A of the 2019 10-K. Our forward-looking statements are based on the information currently available to us and speak only as of the date of the filing of this Report. New risks and uncertainties arise from time to time, and it is impossible for us to predict these matters or how they may affect us. Over time, our actual results, performance, financial condition or achievements may differ from the anticipated results, performance, financial condition or achievements that are expressed or implied by our forward-looking statements, and such differences may be significant and materially adverse to our security holders. Our forward-looking statements contained herein speak only as of the date hereof, and we make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

We are a Maryland-domiciled Real Estate Investment Trust (REIT) that owns a portfolio of real estate assets related to transportation, energy infrastructure and Controlled Environment Agriculture (CEA) in the United States. We are focused on making new acquisitions of real estate within the CEA sector related to food and cannabis production.

 

We are structured as a holding company and owns our assets through twelve wholly-owned, special purpose subsidiaries that have been formed in order to hold real estate assets, obtain financing and generate lease revenue. We were formed as part of a reorganization and reverse triangular merger of Pittsburgh & West Virginia Railroad (“P&WV”) that closed on December 2, 2011. P&WV survived the reorganization as our wholly-owned subsidiary. Our investment strategy, which is focused on transportation, CEA and energy infrastructure-related real estate, builds upon P&WV’s historical ownership of railroad real estate assets, which are currently triple-net leased to Norfolk Southern Railroad (“NSC”). We typically enter into long-term triple net leases where tenants are responsible for all ongoing costs related to the property, including insurance, taxes and maintenance.

 

Prior to 2019, our focus was on the acquisition of real estate assets related to transportation and energy infrastructure. In 2019 we expanded the focus of our real estate acquisitions to include CEA properties in the United States. CEA is an innovative method of growing plants that involves creating optimized growing environments for a given crop indoors. We are currently focused on making new acquisitions of real estate within the CEA sector related to food and cannabis cultivation.

 

As of September 30, 2020, our portfolio consisted of approximately 112 miles of railroad infrastructure and related real estate leased to a railway company which is owned by our subsidiary, P&WV, approximately 601 acres of fee simple land leased to a number of solar power generating projects with an aggregate generating capacity of approximately 108 MW and approximately 34 acres of land with 164,000 square feet of existing or under construction greenhouses leased to medical cannabis operators. We are actively seeking to grow our portfolio of CEA for food and cannabis production. To that end, on October 15, 2020, we, through our wholly owned subsidiary acquired two properties totaling 4.46 acres located in Crowley County, Colorado (the “MF Properties”) for $150,000. In connection with the acquisition of the MF Properties, we entered into a triple-net lease (the “MF Lease”) with PSP Management LLC (“Monte Fiore”). The MF Lease provides that Monte Fiore is responsible for paying all expenses related to the MF Properties, including maintenance expenses, insurance and taxes. The MF Lease requires Monte Fiore to maintain a medical cannabis license and operate in accordance with all Colorado regulations with respect to its operations. As part of the MF Lease, Power REIT agreed to fund the construction of an approximately 34,000 square foot greenhouse/processing facility for a total capital commitment of $3.06 million. The MF Lease is structured whereby after an initial deferred rent period, the rental payments provide us with a full return of our original invested capital over the next three years, and thereafter provides an approximately 13.3% return increasing at 3% rate per annum. In addition, at any time after year six, if cannabis is legalized at the federal level, we have agreed to decrease the rent to an amount equal to a 9% return on the original invested capital amount with increases at a 3% rate per annum based on a starting date of the start of year seven.

 

Recent Developments

 

During the third quarter ended September 30, 2020, we added to our portfolio of CEA properties by acquiring two new properties and expanding a lease on a property acquired in 2020.

 

On September 17, 2020, through the wholly owned subsidiary, PW ME CanRE SD, LLC, (“Propco”), we completed the acquisition of a property (“505 Property”) in York County, Maine by exercising an option we received at the time of the acquisition of a prior property which is adjacent to the 505 Property. The 505 Property is a 3.58 acre property that we purchased for $400,000. As part of the transaction, we agreed to fund the construction of an additional 9,900 square feet of processing space and renovate an existing 2,738 square foot building for $1.56 million. Accordingly, our total investment in the 505 property, after completion of our construction commitments will be approximately $1.96 million. We intend to fund construction costs in addition to acquisition expenses from existing working capital. Propco has entered into a triple-net lease (the “Sweet Dirt Lease”) with the operator, (“Sweet Dirt”), such that Sweet Dirt is responsible for paying all expenses related to the 505 Property, including maintenance, insurance and taxes. The Sweet Dirt Lease is structured to provide a straight-line annual rent of approximately $373,000, representing an estimated yield on costs of approximately 19%. The term of the Sweet Dirt Lease is 20 years and provides two options to extend for additional five-year periods. The Sweet Dirt Lease also has financial guarantees from affiliates of Sweet Dirt.

 

The rent for the Sweet Dirt Lease is structured whereby after a nine-month deferred-rent period, the monthly rental payments over the next three years will provide us with a full return on invested capital. After the deferred-rent period, rent is structured to provide a 13.2% return based on the original invested capital amount with annual rent increases of 3% rate per annum. At any time after year six, if cannabis is legalized at the federal level, we have agreed to decrease the rent to an amount equal to a 9% return on the original invested capital amount with increases at a 3% rate per annum based on a starting date of the start of year seven.

 

Sweet Dirt intends to operate as a licensed cannabis cultivation and processing facility. The Sweet Dirt Lease requires Sweet Dirt to maintain a medical cannabis license and operate in accordance with all Maine and local regulations with respect to its operations. The combined properties are expected to be one of the largest cannabis greenhouse cultivation and processing/distribution properties in the state of Maine upon completion of both properties.

 

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On September 18, 2020, through a newly formed wholly owned subsidiary, PW CO CanRE Tam 7, LLC, (“Propco”), we completed the acquisition of a property in Southern Colorado (“Tamarack 7”). Tamarack 7 is 4.32 acres of vacant land approved for medical cannabis cultivation that we acquired for $150,000. As part of the transaction, we agreed to fund the construction of an 18,000 square feet greenhouse and processing facility space for approximately $1.21 million. Accordingly, our total capital commitment is approximately $1.36 million in addition to acquisition costs which we intend to be funded from existing working capital. Concurrent with the closing, Propco entered into a triple-net lease (the “Tamarack Lease”) with a tenant/operator (“Fifth Ace”) such that Fifth Ace is responsible for paying all expenses related to the property, including maintenance, insurance and taxes. The Tamarack Lease is structured to provide a straight-line annual rent of approximately $261,000, representing an estimated yield of over 18.5% over our investment. The term of the Tamarack Lease is 20 years and provides two options to extend the terms of the Tamarack Lease for additional five-year periods. The Tamarack Lease also has financial guarantees from affiliates of Fifth Ace.

 

The rent for the Tamarack Lease is structured whereby after a nine-month deferred-rent period, the monthly rental payments over the next three years will provide us with a full return on invested capital. After the deferred-rent period, rent is structured to provide a 12.9% return based on the original invested capital amount with annual rent increases of 3% rate per annum. At any time after year six, if cannabis is legalized at the federal level, the rent will be decreased to an amount equal to a 9% return on the original invested capital amount with increases at a 3% rate per annum based on a starting date of the start of year seven. The Tamarack Lease requires Fifth Ace to maintain a medical cannabis license and operate in accordance with all Colorado and local regulations with respect to its operations.

 

The acquisitions are accounted for as asset acquisitions under ASC 805-50. We have established a depreciable life for the greenhouses of 20 years.

 

On August 25, 2020, we amended the lease with the tenant of our Sherman 6 property located in southern Colorado, making an additional $151,301 available to fund the construction of an additional 2,520 square feet of head-house/processing space. The amended lease results in additional straight-line annual rent of approximately $29,000, which translates to a greater than an 18% yield on our investment.

 

The following table is a summary of the Trust’s properties as of October 28, 2020:

 

Property Type/Name  Location  Acres   Size1   Lease Start  Term (yrs)2   Rent ($)   Gross Book Value 
Railroad Property                            
P&WV (Norfolk Southern)  PA/WV/OH      112 miles   Oct-64  99   $915,000   $9,150,000 
                             
Solar Farm Land                            
PWSS  Salisbury, MA  54   5.7   Dec-11  22    89,494    1,005,538 
PWTS  Tulare County, CA  18   4.0   Mar-13  25    32,500    310,000 
PWTS  Tulare County, CA  18   4.0   Mar-13  25    37,500    310,000 
PWTS  Tulare County, CA  10   4.0   Mar-13  25    16,800    310,000 
PWTS  Tulare County, CA  10   4.0   Mar-13  25    29,900    310,000 
PWTS  Tulare County, CA  44   4.0   Mar-13  25    40,800    310,000 
PWRS  Kern County, CA  447   82.0   Apr-14  26    803,117    9,183,548 
   Solar Farm Land Total  501   87.7          $1,050,111   $11,739,086 
                             
CEA (Cannabis) Property34                            
JAB - Tam Lot 18  Crowley County, CO  2.11   12,996   Jul-19  20    201,810    1,075,000 
JAB - Mav Lot 1  Crowley County, CO  5.20   16,416   Jul-19  20    294,046    1,594,582 
Grassland - Mav Lot 14  Crowley County, CO  5.54   26,940   Feb-20  20    354,461    1,908,400 
Chronic - Sherman Lot 6  Crowley County, CO  5.00   26,416   Feb-20  20    375,159    1,995,101 
Original - Mav Lot 5  Crowley County, CO  5.20   15,000   Apr-20  20    256,743    1,358,664 
Sweet Dirt 495  York County, ME  3.06   35,600   May-20  20    919,849    4,917,134 
Sweet Dirt 505  York County, ME  3.58   12,638   Sep-20  20    373,055    1,964,723 
Fifth Ace - Tam Lot 7  Crowley County, CO  4.32   18,000   Sep-20  20    261,963    1,364,585 
MF - Tam Lot 13  Crowley County, CO  2.37   9,384   Oct-20  20    87,964    425,000 
MF - Tam Lot 14  Crowley County, CO  2.09   24,360   Oct-20  20    490,700    2,637,300 
   CEA Total  38.47   197,750          $3,615,750   $19,240,489 
Grand Total                    $5,580,861   $40,129,575 

 

1 Solar Farm Land size represents Megawatts and CEA property size represents square feet

2 Not including renewal options

3 Rent represents straight line net rent

4 Gross Book Value represents total commitment

 

Note: Size, Rent and Gross Book Value assume completion of approved construction

 

Critical Accounting Policies

 

The consolidated financial statements are prepared in conformity with U.S. GAAP, which requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results may differ from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that affect the condensed consolidated financial statements and the judgments and assumptions used are consistent with those described under Part II, Item 7 of the 2019 10-K.

 

Results of Operations

 

Three Months Ended September 30, 2020 and 2019

 

Revenue during the three months ended September 30, 2020 and 2019 was $1,115,586 and $563,871 respectively. Revenue during the three months ended September 30, 2020 consisted of revenue from lease income from direct financing lease of $228,750, rental income of $882,625 and miscellaneous income of $4,211. The increase in total revenue was primarily related to a $548,093 increase in rental income from newly acquired properties. Expenses for the three months ended September 30, 2020 increased by $249,344 as compared to total expenses for the three months ended September 30, 2019 primarily due to an increase in general and administrative expenses of $51,724 due to an increase in NYSE listing fees and an increase in stock compensation, and an increase in interest expense of $175,141 as a result of the previously disclosed financing that closed in November 2019. Net income attributable to Common Shares during the three months ended September 30, 2020 and 2019 was approximately $506,006 and $203,635, respectively. Net income increased by $302,371 primarily due to the increase in rental income which was offset by an increase in general and administrative expenses and an increase in interest expense.

 

For the three months ended September 30, 2020 and 2019, we paid a cash dividend to our holders of Series A Preferred Stock of $70,058.

 

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Nine Months Ended September 30, 2020 and 2019

 

Revenue during the nine months ended September 30, 2020 and 2019 was $2,878,096 and $1,554,075 respectively. Revenue during the nine months ended September 30, 2020 consisted of revenue from lease income from direct financing lease of $686,250, rental income of $2,121,268 and miscellaneous income of $70,578. The increase in total revenue was primarily related to a $1,261,681 increase in rental income from newly acquired properties. Expenses for the nine months ended September 30, 2020 increased by $700,513 as compared to total expenses for the nine months ended September 30, 2019 primarily due to an increase in general and administrative expenses of $87,176 due to an increase in audit, NYSE listing and stock compensation fees, an increase in depreciation expense of $78,318 due to the newly acquired properties and an increase in interest expense of $531,053 as a result of the previously disclosed financing that closed in November 2019. Net income attributable to Common Shares during the first nine months of 2020 and 2019 was approximately $1,097,730 and $474,222, respectively. The difference between our 2020 and 2019 results were principally attributable to the following: a $1,261,681 increase in of rental income from newly acquired properties, a $62,340 increase in miscellaneous income due to more interest income, offset by a $78,318 increase in depreciation expense, a $87,176 increase in general and administrative expenses and a $531,053 increase in interest expense.

 

For the nine months ended September 30, 2020 and 2019, we paid a cash dividend to our holders of Series A Preferred Stock of $210,174.

 

Liquidity and Capital Resources

 

Our cash and cash equivalents totaled approximately $7,639,392 as of September 30, 2020, a decrease of $8,203,112 from December 31, 2019. During the nine months ended September 30, 2020, the primary use of cash was for working capital requirements and investment activities that included $2,746,019 paid for land and cultivation facilities and $6,686,138 paid for construction in progress for cultivation facilities. Net cash used in financing activities or the nine months ended September 30, 2020 included $542,980 of payments on long-term debt and $210,174 for dividend payments to the holders of our Series A Preferred Stock.

 

With the cash available in early November 2020, we believe these resources will be sufficient to fund our operations and commitments. Our cash outlays, other than acquisitions, property improvements, dividend payments and interest expense, are for general and administrative (“G&A”) expenses, which consist principally of legal and other professional fees, consultant fees, NYSE American listing fees, insurance, shareholder service company fees and auditing costs.

 

To meet our working capital and longer-term capital needs, we intend to rely on cash provided by our operating activities, proceeds received from the issuance of equity securities and proceeds received from borrowings, which are typically secured by liens on assets. Based on our leases in place and rental income as of September 30, 2020, we anticipate generating $5,642,709 in cash rent over the next twelve months. At September 30, 2020, we owed debt in the principal amount of $24,465,046, of which $631,082 is due in the next twelve months. We anticipate that our cash from operations will be sufficient to support our operations; however additional acquisition of real estate may require us to seek to raise additional financing. There can be no assurance that financing will be available when needed on favorable terms.

 

FUNDS FROM OPERATIONS – NON GAAP FINANCIAL MEASURES

 

We assess and measure our overall operating results based upon an industry performance measure referred to as Core Funds From Operations (“Core FFO”) which management believes is a useful indicator of our operating performance. Core FFO is a non-GAAP financial measure. Core FFO should not be construed as a substitute for net income (loss) (as determined in accordance with GAAP) for the purpose of analyzing our operating performance or financial position, as Core FFO is not defined by GAAP. The following is a definition of this measure, an explanation as to why we present it and, at the end of this section, a reconciliation of Core FFO to the most directly comparable GAAP financial measure.

 

Management believes that alternative measures of performance, such as net income computed under GAAP, or Funds From Operations computed in accordance with the definition used by the National Association of Real Estate Investment Trusts (“NAREIT”), include certain financial items that are not indicative of the results provided by our asset portfolio and inappropriately affect the comparability of the Company’s period-over-period performance. These items include non-recurring expenses, such as one-time upfront acquisition expenses that are not capitalized under ASC-805 and certain non-cash expenses, including stock-based compensation expense, amortization and certain up, front financing costs. Therefore, management uses Core FFO and defines it as net income excluding such items. We believe that Core FFO is a useful supplemental measure for the investing community to employ, including when comparing us to other REITs that disclose similarly Core FFO figures, and when analyzing changes in our performance over time. Readers are cautioned that other REITs may use different adjustments to their GAAP financial measures than we do, and that as a result, our Core FFO may not be comparable to the FFO measures used by other REITs or to other non-GAAP or GAAP financial measures used by REITs or other companies.

 

19
 

 

A reconciliation of our Core FFO to net income for the three and nine months ended September 30, 2019 and 2018 is included in the table below (in thousands):

 

CORE FUNDS FROM OPERATIONS (FFO)

(Unaudited)

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2020   2019   2020   2019 
Net Income  $576,064   $273,693   $1,307,904   $684,396 
Stock-Based Compensation   66,161    47,127    189,452    158,208 
Interest Expense - Amortization of Debt Costs   8,527    6,297    25,582    18,892 
Amortization of Intangible Asset   59,285    59,285    177,854    177,855 
Depreciation on Land Improvements   39,767    17,711    96,029    17,711 
Core FFO Available to Preferred and Common Stock   749,804    404,113    1,796,821    1,057,062 
                     
Preferred Stock Dividends   (70,058)   (70,058)   (210,174)   (210,174)
                     
Core FFO Available to Common Shares  $679,746   $334,055   $1,586,647   $846,888 
                     
Weighted Average Shares Outstanding (basic)   1,915,200    1,872,939    1,909,151    1,871,093 
                     
Core FFO per Common Share   0.35    0.18    0.83    0.45 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Management is responsible for establishing and maintaining adequate disclosure controls and procedures (as defined Rules 13a-15(e) and 15d-15(e) under the Exchange Act) (to provide reasonable assurance regarding the reliability of our financial reporting and preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. A control system, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Because of the inherent limitations in all control systems, internal controls over financial reporting may not prevent or detect misstatements. The design and operation of a control system must also reflect that there are resource constraints and management is necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls.

 

Our management assessed the effectiveness of the design and operation of our disclosure controls and procedures. Based on our evaluation, we believe that our disclosure controls and procedures as of September 30, 2020 were effective.

 

Changes in Internal Control over Financial Reporting:

 

During the fiscal quarter ended September 30, 2020, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are, from time to time, the subject of claims and suits arising out of matters related to our business. In general, litigation claims can be expensive, and time consuming to bring or defend against and could result in settlements or damages that could significantly affect financial results. It is not possible to predict the final resolution of the current litigation to which we are party to, and the impact of certain of these matters on our business, results of operations, and financial condition could be material. Regardless of the outcome, litigation has adversely impacted our business because of defense costs, diversion of management resources and other factors.

 

Item 1A. Risk Factors.

 

The Trust’s results of operations and financial condition are subject to numerous risks and uncertainties as described in the 2019 10-K which risk factors are incorporated herein by reference. You should carefully consider these risk factors in conjunction with the other information contained in this Report. Should any of these risks materialize, the Trust’s business, financial condition and future prospects could be negatively impacted. The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item 1A, “Risk Factors,” contained in the 2019 10K. There have been no material changes from the risk factors disclosed in the 2019 10-K.

 

During 2020, a global COVID 19 pandemic emerged which has had broad financial impact on most industries and countries. To date, the Trust has not experienced any direct impact from the COVID 19 crisis. The Trust continues to monitor COVID 19 and the potential financial implications on its assets and business plans as well as on its tenants and their ability to pay rent. There can be no assurance what ultimate impact COVID 19 will have on Power REIT on a going forward basis.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

Not Applicable.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

Exhibit Number

  Exhibit Title
     

Exhibit 10.20

  Amendment to Lease Agreement between PW ME CanRE SD, LLC and NorthEast Kind Assets, LLC dated May 15, 2020, incorporated herein by reference to such exhibit to the Registrant’s current report on Form 8-K filed with the Commission as of September 18, 2020.
     
Exhibit 10.21   Amendment to Lease Agreement between PW CO CanRE Sherman 6, LLC and Greenstreet, LLC dated February 1, 2020, incorporated herein by reference to such exhibit to the Registrant’s current report on Form 8-K filed with the Commission as of September 18, 2020.
     
Exhibit 10.22   Lease Agreement between PW CO CanRE Tam 7, LLC and Fifth Ace, LLC dated September 18, 2020 incorporated herein by reference to such exhibit to the Registrant’s current report on Form 8-K filed with the Commission as of September 21, 2020.
     
Exhibit 31.1   Section 302 Certification for David H. Lesser
     
Exhibit 32.1   Section 906 Certification for David H. Lesser
     
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-Q for the quarter ended September 30, 2020 to be signed on its behalf by the undersigned thereunto duly authorized.

 

POWER REIT

 

/s/ David H. Lesser  
David H. Lesser  
Chairman of the Board &  
Chief Executive Officer, Secretary and Treasurer  
Date: October 28, 2020  

 

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