Power REIT — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; filing dated August 14, 2023. Power REIT owns railroad, solar-land and controlled-environment agriculture properties, including greenhouses. Its portfolio included approximately 112 railroad miles, 501 acres of solar land and 263 acres of greenhouse properties.
Key financial metrics
| Metric | Q2 2023 / June 30, 2023 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $217,898 for Q2; $1.223 million for first half | $2.233 million for Q2 2022; $4.218 million for first half 2022 |
| Net income (loss) | $(2.191) million for Q2; $(2.530) million for first half | $945,000 for Q2 2022; $1.943 million for first half 2022 |
| Net loss attributable to common shareholders | $(2.355) million for Q2; $(2.857) million for first half; $(0.69) and $(0.84) per share, respectively | $782,000 for Q2 2022; $1.616 million for first half 2022 |
| Core FFO available to common shares | $(1.446) million for Q2; $(2.079) million for first half; $(0.43) and $(0.61) per share, respectively | $1.395 million for Q2 2022; $2.744 million for first half 2022 |
| Operating cash flow | $(1.690) million for first half | $5.210 million provided in first half 2022 |
| Cash and liquidity | $3.273 million unrestricted cash; $1.000 million restricted cash; $4.273 million combined | $3.848 million combined at December 31, 2022 |
| Debt | $38.799 million principal shown in scheduled payments; approximately $39 million outstanding principal | Balance-sheet debt, net of discounts, was $38.040 million |
| Total assets / equity | $83.581 million / $33.193 million | $86.197 million / $35.597 million at December 31, 2022 |
The filing does not provide a clear consolidated operating-margin figure. Lower revenue and higher expenses resulted in substantial losses. Expenses included $1.189 million of interest expense in the first half. Preferred dividends of approximately $326,000 accrued in the first half; no cash preferred dividend was paid during that period. Accrued dividends were $0.97 per preferred share for the first half.
Material changes versus prior periods
- First-half revenue fell 71% year over year, mainly because cannabis-related tenants defaulted or faced financial difficulty, and some lease income shifted to cash-basis recognition. A roughly $315,000 net write-off of straight-line rent receivables contributed to negative rental income in Q2.
- First-half expenses rose approximately $2.358 million year over year. Property maintenance increased $1.035 million and property taxes increased $182,000, largely in connection with tenant defaults; interest expense rose $438,000.
- First-half operating cash flow swung from $5.210 million provided to $1.690 million used. Cash increased by $425,000, primarily reflecting $2.409 million of proceeds from the sale of solar land.
- On January 6, 2023, the Trust sold five Tulare County solar ground-lease interests for $2.5 million gross proceeds and recognized a $1.040 million gain.
- Three properties—Canndescent, Walsenburg and Sweet Dirt—remained classified as held for sale. Held-for-sale assets totaled $13.717 million at June 30, 2023.
Outlook, risks and unusual items
- Going concern: Management concluded that substantial doubt exists about the Trust’s ability to continue as a going concern, citing losses, expected lower revenue and higher property maintenance costs. Management believes cash, prospective asset sales, new leases, improved collections and potential debt or equity capital may be sufficient to fund operations and commitments, but stated outcomes are uncertain.
- Liquidity and debt terms: The March 2023 debt-facility amendment reduced the commitment to $16 million, set the rate at the greater of Prime plus 1% or 8.75%, made payments interest-only until maturity, and changed maturity to December 21, 2025. The facility requires at least $1 million of liquidity; the Trust reported compliance with loan covenants at June 30. Proceeds from certain asset sales must be applied to debt. Scheduled principal payments include $16.756 million in 2025.
- Sweet Dirt: The tenant had not paid rent for May, June or July 2023 and was in default under the property sale agreement after failing to close by the extended June 21 deadline and provide a required additional deposit. Discussions were ongoing; there was no assurance the sale would close.
- Tenant and portfolio concentration: Three properties accounted for approximately 89% of first-half revenue collected: Norfolk Southern Railway (42%), Regulus Solar (37%) and Sweet Dirt (10%). Management cited cannabis wholesale-price compression and tenant financial distress. Several affiliated-tenant properties were not operational and produced no rental income in the first half.
- Other matters: A Colorado tenant-related lawsuit remained pending, with the Trust awaiting a court ruling after May 2023 hearings. Management said it did not believe exposure to the plaintiffs’ claims was material beyond litigation costs. Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
- The filing gives no quantified earnings or revenue guidance. Management’s stated priorities include selling non-core or underperforming assets, reducing leverage, re-leasing properties and improving collections.
Investor verification points
- Confirm the status, timing and expected proceeds of sales of Sweet Dirt and the other held-for-sale properties, including the tenant’s lease and sale-agreement defaults.
- Track cash burn, rent collections, maintenance and tax costs, and whether management’s liquidity plans address the disclosed going-concern substantial doubt.
- Review debt-facility pricing, liquidity and coverage requirements, asset-sale repayment obligations, covenant compliance and the 2025 maturity-related payments.
- Assess tenant concentration and the operating, leasing or disposition prospects for vacant, defaulted and affiliated-tenant properties.
- Verify preferred-dividend accruals and any future payments; distinguish accrued dividends from cash distributions.