Power REIT 10-K Summary: Fiscal Year Ended December 31, 2015
Business Context and Reporting Period
Power REIT is a Maryland-domiciled real estate investment trust (REIT) focused on acquiring and managing real estate assets related to transportation and energy infrastructure. The reporting period covers the fiscal year ended December 31, 2015. The Company operates as a holding company with four primary subsidiaries: Pittsburgh & West Virginia Railroad (P&WV), PW Salisbury Solar, LLC, PW Tulare Solar, LLC, and PW Regulus Solar, LLC. As of year-end, the portfolio consisted of approximately 112 miles of railroad infrastructure and 601 acres of land leased to solar projects with an aggregate capacity of 108 Megawatts.
Key Financial Metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Total Revenue | $1,970,115 | $1,743,189 |
| Net Loss | $(450,755) | $(1,556,489) |
| Net Loss Attributable to Common Shares | $(730,626) | $(1,747,470) |
| Core Funds From Operations (FFO) | $978,926 | $830,087 |
| Long-Term Debt | $10,623,088 | $7,519,413 |
| Cash and Cash Equivalents | $435,870 | $654,381 |
| Preferred Stock Dividends Paid | $279,871 | $190,981 |
Liquidity: The Company reported a net cash outflow from operating activities of approximately $225,000 in 2015. Financing activities provided net cash of approximately $6,500, driven by new bond issuances offset by debt repayments and preferred dividends. The Company has suspended common stock dividends since the second quarter of 2013.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased by approximately 13% to $1.97 million, primarily due to the full-year contribution from the PW Regulus Solar (PWRS) acquisition completed in 2014.
- Improved Net Loss: The net loss narrowed significantly from $1.56 million in 2014 to $0.45 million in 2015. This improvement was driven by a reduction in litigation expenses (from $1.05 million to $0.36 million) and the elimination of property acquisition expenses ($0 in 2015 vs. $0.36 million in 2014).
- Debt Restructuring: In November 2015, the Company refinanced its credit facility and related party bridge loans with the issuance of $10.15 million in PWRS Bonds. This resulted in a one-time loss on debt extinguishment of approximately $353,000 and a loss on interest rate swap termination of $189,000.
- Asset Concentration: Revenue concentration remains high, with P&WV (railroad) and PWRS (solar) contributing 47% and 41% of total revenue, respectively.
Outlook, Risks, and Contingencies
Legal Proceedings: The Company is engaged in ongoing litigation with its primary lessee, Norfolk Southern Railway (NSC), and its sub-lessee. While the trial court ruled in favor of Power REIT on claims brought against the Trust, it found P&WV liable for nominal damages ($1.00) on fraud and breach of contract claims. Power REIT filed a Notice of Appeal on January 26, 2016. The outcome of this appeal is uncertain and could materially affect the Company's ability to collect disputed indebtedness (estimated at over $16.6 million as of 2012) and litigation costs.
Dividend Policy: Common stock dividends remain suspended until litigation costs diminish. The Company paid approximately $280,000 in dividends on its Series A Preferred Stock during 2015.
Risk Factors: Key risks include the outcome of the NSC litigation, the Company's dependence on a single executive (David H. Lesser), high concentration of revenue from two assets, and the potential inability to access capital markets for growth due to the litigation and small reporting company status.
Investor Verification Checklist
- Litigation Status: Verify the current status of the appeal filed with the Third Circuit Court of Appeals and the potential impact on the collection of the ~$16.6 million disputed receivable from NSC.
- Dividend Sustainability: Confirm the timeline for the resumption of common stock dividends given the ongoing legal expenses and the requirement to pay preferred dividends first.
- Debt Covenants: Review the terms of the new $10.15 million PWRS Bonds (maturing 2034) and the remaining $0.69 million PWSS Term Loan to ensure compliance with covenants.
- Revenue Concentration: Assess the risk exposure given that 88% of revenue is derived from just two assets (P&WV and PWRS).
- Management Depth: Evaluate the operational risk associated with the Company having only one executive officer (CEO/Chairman) responsible for all financial reporting and operations.