Power REIT — Q1 2018 Form 10-Q
Business context and period: Unaudited consolidated results for the three months ended March 31, 2018. Power REIT owns and leases transportation and energy infrastructure real estate. Its portfolio included approximately 112 miles of railroad infrastructure leased to a railway company and 601 acres leased to solar projects with approximately 108 MW of generating capacity. The company is pursuing additional renewable-energy real estate investments.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Total revenue | $492,603 | $491,310; up $1,293 (0.3%) |
| Total expenses | $277,956 | $299,092; down $21,136 |
| Net income | $214,647 | $192,218 |
| Net income attributable to common shares | $144,589; $0.08 per share | $122,250; $0.07 per share |
| Core FFO available to common shares | $257,537; $0.14 per share | $242,364; $0.14 per share |
| Cash provided by operating activities | $552,643 | $436,860 |
Revenue was essentially flat year over year. Common-share income rose approximately 18%, principally reflecting lower general and administrative costs and interest expense; litigation expense was zero versus $730 in Q1 2017. Core FFO increased approximately 6%, while Core FFO per share remained unchanged. The reported net-income-to-revenue ratio was approximately 43.6%, versus 39.1% a year earlier.
At March 31, 2018, cash and cash equivalents were $1.616 million, compared with $1.147 million at year-end 2017. Total assets were $22.003 million and total liabilities were $10.401 million. Debt carrying value was approximately $9.887 million, including $366,876 current and $9.520 million long-term. Debt includes fixed-rate obligations: the PWRS bonds bear 4.34% interest and mature in 2034; the bank term loan and municipal debt bear 5.0%. The company paid approximately $70,000 in preferred dividends during the quarter. No capital expenditures or acquisitions are reported in the supplied filing text.
Material changes, outlook and risks
- Cash increased by $469,213 during the quarter. Operating cash flow was partly offset by $83,430 of financing outflows, including debt principal payments and preferred dividends.
- Total assets increased approximately $543,000 from December 31, 2017; cash rose approximately $469,000. Deferred revenue increased from $42,775 to $393,418.
- Management provided no quantified operating or earnings guidance. It said it is actively seeking renewable-energy real estate acquisitions and may fund working-capital and longer-term needs with operating cash, equity issuance, or secured borrowings.
- The NSC/Wheeling & Lake Erie railroad-lease litigation remains a significant contingency. The trial court ruled against P&WV on certain NSC claims, awarded nominal damages of $1, and denied punitive damages; the appellate court affirmed in August 2017. The company reported no litigation expense in Q1 2018 and said it had not recorded a loss contingency, believing litigation expenses had been accounted for.
- NSC continues to make quarterly base rent payments of $228,750. The filing says disputed indebtedness previously reported by NSC at approximately $16.6 million as of December 31, 2012, plus other disputed amounts, is deemed uncollectable following the litigation outcome and will be written off for tax purposes. It is not included in the GAAP financial statements; P&WV will track it as an amount potentially due upon lease termination.
- Power REIT adopted the new revenue-recognition standard on January 1, 2018 with no material impact. The expected impact of the forthcoming lease-accounting standard was not estimable. Management assessed disclosure controls as effective and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Review the annual report’s risk factors and the current status and contractual implications of the railroad lease, including the disputed termination-related amounts.
- Verify tenant and lease concentration, rent-payment performance, and the durability of the railroad and solar lease cash flows.
- Assess liquidity and refinancing capacity against approximately $9.9 million of debt, scheduled principal payments, and preferred dividends.
- Monitor whether management’s renewable-energy acquisition plans result in transactions, and how any acquisitions would be financed.
- Confirm REIT qualification and distribution requirements; the filing states that at least 90% of ordinary taxable annual income must be distributed to maintain REIT status.