Power REIT — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Financial statements are unaudited. Power REIT is a Maryland REIT focused on transportation and energy-infrastructure real estate.
Business context
At quarter-end, the portfolio included approximately 112 miles of railroad infrastructure and related real estate leased to a railway company, plus approximately 601 acres of land leased to solar projects with aggregate capacity of about 108 MW. The company said it was seeking to expand its renewable-energy real estate portfolio. It reported 1,827,339 common shares outstanding at November 3, 2017.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $491,757 | $491,719 | $1,474,390 | $1,485,389 |
| Net income | $102,726 | $45,313 | $492,128 | $173,897 |
| Net income (loss) attributable to common shares | $32,758 | ($24,655) | $282,224 | ($36,007) |
| Basic and diluted earnings (loss) per common share | $0.02 | ($0.01) | $0.16 | ($0.02) |
| Core FFO available to common shares | $266,142 | $233,484 | $752,012 | $788,382 |
| Core FFO per common share | $0.15 | $0.13 | $0.42 | $0.45 |
For the nine months, operating cash flow was $1,045,150, compared with $789,700 in 2016. Debt principal payments and preferred dividends used $547,148; cash increased by $498,002 to $1,215,106. Preferred dividends were $209,904 for the period, or $0.48375 per preferred share per quarter.
At September 30, 2017, total assets were $21.51 million, total liabilities $10.30 million, and total equity $7.71 million. Long-term debt, including its current portion, was approximately $9.89 million. The main borrowings carried fixed rates of 4.34% to 5.0%; the largest financing matures in 2034. The filing does not provide a current ratio or a separately stated operating margin.
Changes versus prior comparable periods
- Nine-month revenue was down about $11,000 (less than 1%) year over year, while net income attributable to common shares improved by about $318,000, from a loss to income.
- Management attributed the earnings improvement principally to litigation expense falling by about $361,000; general and administrative expense increased about $29,000.
- Nine-month Core FFO declined about $36,000, or 5%, despite the improvement in GAAP common-share results.
- Cash rose from $717,104 at December 31, 2016 to $1,215,106 at September 30, 2017. Total debt was lower than year-end 2016.
Outlook, risks and unusual items
- No numerical revenue, earnings, acquisition or other forward guidance was provided. Management stated that it was pursuing eligible infrastructure and renewable-energy investment opportunities and expected to rely on operating cash flow, equity issuance and borrowings to fund working-capital and longer-term needs.
- On August 29, 2017, the Third Circuit affirmed the lower-court ruling in the NSC/Wheeling & Lake Erie railroad-lease litigation. P&WV received a nominal $1 award on certain claims; punitive damages were denied. The company reported approximately $125,000 of litigation costs for the first nine months of 2017 versus $486,000 in 2016, and cumulative costs of approximately $3.67 million.
- The company said NSC continued to pay base rent of $228,750 per quarter. The disputed lease-related indebtedness, reported from NSC records at approximately $16.6 million as of December 31, 2012, was not recorded in GAAP financial statements. Following the litigation outcome, the company described it as uncollectable and said it would be written off for tax purposes, while tracked as a termination fee potentially due upon lease termination. The filing gives no updated amount.
- The company declared a $0.48375-per-share preferred dividend on October 31, payable December 15, 2017. Management reported disclosure controls were effective and no material quarterly change in internal control over financial reporting.
- Risks include dependence on lease revenue, the ability to fund expansion, REIT qualification and distribution requirements, and the risks incorporated from the company’s 2016 Form 10-K. Management cautioned that interim results may not indicate full-year results.
Key facts for investors to verify
- Review the railroad lease terms and the legal effect and collectability of the disputed indebtedness/termination fee after the appellate decision.
- Confirm ongoing payment of the $228,750 quarterly railroad base rent and assess tenant concentration and lease-renewal or termination exposure.
- Assess cash available for operations, debt service and preferred dividends, including the fixed-rate debt terms and scheduled maturities.
- Reconcile the divergence between improving GAAP common-share earnings and lower nine-month Core FFO; Core FFO is a company-defined non-GAAP measure and may not be comparable with peers.
- Verify execution and financing of the stated renewable-energy growth strategy, as the filing provides no quantified acquisition pipeline or formal guidance.