Power REIT — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013; financial statements are unaudited. Dollar amounts below are in thousands unless stated otherwise.
Business context
Power REIT owns transportation and energy-infrastructure real estate through subsidiaries. At quarter-end, its assets included railroad property leased to Norfolk Southern (NSC) and 54 acres leased to an operating solar farm. Railroad lease payments accounted for approximately 91% of Q2 revenue.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $251 | $229 | $502 | $458 |
| Net loss | $(100) | $(98) | $(211) | $(51) |
| Basic loss per share | $(0.06) | $(0.06) | $(0.13) | $(0.03) |
| Cash dividends per share | — | $0.10 | $0.10 | $0.20 |
Q2 revenue rose about 10% year over year, primarily reflecting $22 of solar-land rent. Q2 expenses increased $24: litigation costs rose $100, partly offset by $90 lower general and administrative costs. For the six months, litigation expense was $481 versus $224, contributing to the larger net loss.
Six-month operating cash outflow was $26, compared with $97 in 2012. Financing provided $42, including $219 of net equity proceeds, offset by $165 of dividends and $12 of debt repayments. Cash increased $16 to $382 from year-end 2012. At June 30, total assets were $10,746 and equity was $9,255. Reported debt was approximately $915: $800 related-party bridge debt and approximately $115 municipal debt. Current liabilities included $544 accounts payable and $23 accrued interest.
Material developments, outlook and risks
- Q2 dividends were temporarily suspended; management expected to reinstate distributions once NSC litigation costs diminish. The six-month dividend was $0.10 per share, versus $0.20 a year earlier.
- Management expected substantial NSC litigation expense to continue through the remainder of 2013. NSC continued making quarterly base-rent payments, but the filing gives no assurance that it will continue.
- On July 5, 2013, the $800 related-party bridge loan was settled using available cash and a $750 bank term loan. The filing does not provide a clear post-transaction debt or cash balance.
- On July 11, a subsidiary acquired about 100 acres in California for approximately $1.6 million, financed primarily with a $1.65 million acquisition bridge loan from an affiliate. The land is leased to solar projects under construction; annual rent of $157,500 is expected to begin when operations start, anticipated in Q1 2014. Interim rent was scheduled to begin October 1, 2013.
- The company reported Q2 ATM share sales of 22,105 shares for approximately $222 net proceeds. It had authority to sell up to $5.4 million under the ATM program.
- Litigation is a significant contingency. P&WV reported that NSC records showed approximately $16.6 million of indebtedness owed at December 31, 2012; P&WV said this was understated. These disputed amounts are not recognized in the GAAP financial statements. New proposed counterclaims alleged more than $8 million in additional amounts, excluding possible interest and damages. Outcomes and collection of legal costs are uncertain.
Most important facts for investors to verify
- Status, timing, potential costs and outcomes of the NSC litigation, including the disputed debt and additional claims.
- Whether NSC continues paying base rent and whether the concentrated railroad revenue stream remains reliable.
- Post-refinancing debt, cash, interest terms and affiliate exposure, as well as financing for the California acquisition.
- Timing and conditions for dividend reinstatement, given operating losses, litigation spending and the REIT distribution requirement.
- Construction and operating milestones for the California solar projects and commencement of lease revenue.