Power REIT — 2017 Form 10-K Summary
Business context and reporting period
Power REIT is a Maryland REIT focused on U.S. transportation and energy-infrastructure real estate, particularly land leased to renewable-energy projects. This annual report covers the fiscal year ended December 31, 2017; it is not a standalone fourth-quarter report.
At year-end, the portfolio included approximately 112 miles of railroad infrastructure leased to Norfolk Southern (NSC) and about 601 acres leased to solar projects with approximately 108 MW of combined generating capacity. The railroad lease provides fixed annual base rent of $915,000. Solar leases provide the remaining principal rental income. The company reported no acquisitions in 2016 or 2017.
Financial performance and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Total revenue | $1.982 million | $1.976 million |
| Net income | $718,473 | $247,183 |
| Net income (loss) attributable to common shares | $438,602 | $(32,687) |
| Basic and diluted EPS | $0.24 | $(0.02) |
| Core FFO available to common shares | $1.027 million; $0.57 per share | $1.061 million; $0.60 per share |
| Cash from operating activities | $1.054 million | $884,170 |
| Cash and cash equivalents at year-end | $1.147 million | $717,104 |
| Total liabilities | $10.050 million | $10.440 million |
Revenue was nearly flat, while net income increased substantially, chiefly as litigation expense fell by about $353,000 and 2016 equity-offering-cost amortization of about $152,000 did not recur. General and administrative expense rose by about $44,000. Core FFO declined despite the higher GAAP net income.
Investing cash flow was reported as zero in both years. Financing activities used approximately $624,000 in 2017, primarily for $344,000 of debt principal payments and $280,000 of preferred dividends. The balance sheet reports $366,520 of current debt and $9.527 million of long-term debt, net of debt costs; the principal-payment schedule gives total remaining debt of approximately $10.279 million. The filing reports no common-share dividends for 2017.
Material changes, outlook, and risks
- Revenue concentration: NSC and the PWRS solar tenant represented approximately 47% and 41% of 2017 consolidated revenue, respectively. The filing identifies only four investment subsidiaries.
- Litigation: In August 2017, the appellate court affirmed the lower-court ruling. NSC received nominal damages of $1; P&WV’s claims for additional rent, repayment and litigation-cost reimbursement did not prevail. Cumulative litigation costs were approximately $3.68 million; 2017 expense was about $130,000 versus $483,000 in 2016. The company says litigation expenses are accounted for and records no additional loss contingency. It also says NSC continued making quarterly base-rent payments of $228,750.
- Disputed railroad amounts: NSC records showed approximately $16.6 million owed to P&WV as of December 31, 2012, but NSC had not provided a more recent amount. These receivables and additional-rent amounts were fully reserved for financial reporting; the company said it would write off the receivable on its 2017 tax return following the litigation outcome.
- Debt and related parties: The PWRS bonds carry a fixed 4.34% rate and mature in 2034; other borrowings include a 5% PWSS term loan and municipal debt. An affiliate of CEO David Lesser previously provided bridge financing, and the filing also discloses related-party administrative support. Independent trustees approved the described arrangements.
- Outlook: Management said it is pursuing acquisitions in renewable and other infrastructure real estate, but provided no quantified earnings or acquisition guidance. It expects G&A expenses to increase as it implements its business plan. Growth depends on access to capital and suitable investments.
- Key risks: Concentrated tenants and assets, tenant/project performance, financing access and leverage, limited trading liquidity, REIT qualification and distribution requirements, interest rates, and environmental or regulatory exposure. The company relies primarily on one executive, David Lesser. Management considered disclosure controls effective but acknowledged limited segregation of financial-reporting duties; no auditor attestation of internal controls was provided.
Important facts for investors to verify
- Confirm the status and collectability of any railroad-lease amounts beyond the $915,000 annual base rent, and review the full litigation outcome and tax treatment.
- Reconcile reported debt principal of approximately $10.279 million with the balance-sheet carrying amount and review maturities, security and guarantees.
- Assess the concentration and credit exposure to NSC and the PWRS project tenant, including continued payment performance.
- Review cash available for preferred dividends, debt service and growth, and note that common dividends were zero in 2017.
- Check the cash-flow disclosure: the MD&A text describes 2016 operating cash flow as cash used, while the audited cash-flow statement reports $884,170 provided.