Power REIT — 2019 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2019; it does not provide standalone fourth-quarter results. Power REIT owns U.S. real estate associated with rail transportation, solar energy and controlled-environment agriculture (CEA). At year-end, its portfolio included approximately 112 miles of railroad infrastructure, 601 acres leased to solar projects totaling about 108 MW, and 7.3 acres with 18,612 square feet of greenhouse space leased for cannabis cultivation and processing.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $2.181 million | $1.975 million |
| Net income | $946,894 | $838,811 |
| Net income attributable to common shares | $666,662; $0.36 per share | $558,579; $0.30 per share |
| Operating cash flow | $1.372 million | $1.266 million |
| Cash used in investing | $1.799 million | None reported |
| Cash from/(used in) financing | $14.498 million | $(642,000) |
- Revenue increased about 10.4% and net income about 12.9%. Net margin was approximately 43.4%, versus 42.5% in 2018.
- Rental income rose $182,000, while G&A increased about $10,000, depreciation increased about $39,000, and interest expense increased about $49,000.
- Core FFO available to common shares was $1.174 million, or $0.63 per share, compared with $1.044 million, or $0.56 per share. Core FFO is a company-defined non-GAAP measure.
- Year-end cash was $15.843 million, up from $1.771 million. Total assets were $37.708 million and total liabilities were $24.645 million.
- Long-term debt was reported at approximately $24.36 million net of discounts; scheduled principal outstanding was approximately $25.01 million. The November 2019 financing raised $15.5 million gross through 4.62% fixed-rate bonds maturing in 2054.
- Series A preferred dividends were $280,232, or about $1.94 per preferred share. No common dividends were paid in 2019 or 2018.
Material changes and developments
- Power REIT acquired two Colorado greenhouse properties in July for a combined $1.77 million, plus acquisition expenses, and recorded $182,249 in 2019 rent from the leases.
- The company agreed to fund up to $899,582 for a greenhouse expansion at one Colorado property; the amended lease provides approximately $165,000 in additional straight-line annual rent.
- The new $15.5 million bond financing materially increased cash and debt. Proceeds were intended to support additional property acquisitions.
- Revenue concentration eased modestly: the P&WV railroad and PW Regulus solar tenants represented approximately 42% and 37% of 2019 revenue, versus 46% and 41% in 2018.
Outlook, risks and unusual items
- Management is pursuing further CEA acquisitions and expects CEA revenue to become a larger share of the portfolio if its strategy succeeds. It expects G&A expenses to increase as the business plan is implemented. No quantified earnings or revenue guidance is provided.
- Lease revenue remains concentrated in two tenants. A default or operating setback at either could materially affect results and cash flow.
- The cannabis tenant’s activities are permitted under relevant state and local rules, but cannabis remains illegal under U.S. federal law. Federal enforcement, banking access, state-law changes, litigation and possible exchange-listing consequences are identified risks.
- The long-running dispute with Norfolk Southern over additional Railroad Lease rent and accumulated amounts ended with adverse rulings for P&WV; the appellate court affirmed in 2017. The disputed indebtedness was not recorded as an asset and was deemed uncollectable, though the company says it will track the amount as potentially payable upon lease termination. NSC continued paying $228,750 quarterly base rent.
- The company has a single executive, David H. Lesser, who is also chairman, secretary and treasurer; the filing cites key-person and related-party conflict risks. Management reported disclosure controls effective but acknowledged no effective separation of financial-reporting duties. The auditor did not attest to internal control effectiveness.
- The audited financial statements received an unqualified opinion. Subsequent to year-end, the company acquired or committed to fund additional Colorado CEA properties, including acquisitions in January, February and March 2020; these transactions are not included in 2019 results.
Important facts for investors to verify
- Cash available after the new bond financing, planned CEA construction commitments and debt-service requirements.
- Tenant credit and lease performance, especially the two tenants representing about 79% of 2019 revenue combined.
- Terms, funding needs and expected returns of the Colorado acquisitions and greenhouse expansions, including tenant guarantees and rent commencement schedules.
- Current status and accounting or tax treatment of the disputed Railroad Lease indebtedness and any potential termination payment.
- Federal cannabis-law and enforcement developments, banking access and NYSE American listing status.
- Ability to maintain REIT qualification and fund required distributions while meeting debt, preferred-dividend and growth needs.