Power REIT — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017; financial statements are unaudited. Power REIT owns U.S. transportation and energy infrastructure real estate. Its portfolio included approximately 112 miles of railroad infrastructure and related real estate, plus 601 acres leased to solar projects totaling approximately 108 MW. The company said it was pursuing additional renewable-energy and infrastructure real estate investments.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total revenue | $491,323 | $501,996 | $982,633 | $993,670 |
| Net income (loss) | $197,184 | $(36,631) | $389,402 | $128,584 |
| Net income (loss) attributable to common shares | $127,216 | $(106,599) | $249,466 | $(11,352) |
| Basic and diluted earnings (loss) per common share | $0.07 | $(0.06) | $0.14 | $(0.01) |
| Core FFO available to common shares | $243,505 | $310,198 | $485,869 | $554,897 |
| Core FFO per common share | $0.14 | $0.18 | $0.27 | $0.32 |
Six-month operating cash flow was $844,201, compared with $555,269 in 2016. Cash increased by $601,795 to $1,318,899. Financing cash outflows included $102,470 of debt principal payments and $139,936 of preferred dividends. The filing does not provide a clear operating-margin measure.
At June 30, total assets were $21.83 million, total liabilities $10.71 million, and cash $1.32 million. Debt comprised $380,717 current and $9.74 million long-term. The principal financing is fixed-rate: $10.15 million of PWRS bonds at 4.34%, maturing in 2034, and a PWSS term loan at 5.0%; municipal debt also bears 5.0% interest. The 7.75% Series A preferred stock had 146,000 shares outstanding; the company paid approximately $140,000 in preferred dividends during the half-year and declared another $0.48375-per-share dividend for September 2017.
Changes versus prior comparable periods
- Q2 common-share results turned positive from a loss, while revenue was slightly lower. For the first six months, common-share results also improved from a loss to income.
- Management attributed the six-month earnings improvement principally to litigation expense falling by approximately $343,000. This was partly offset by approximately $16,500 higher interest expense and $38,000 higher general and administrative expense.
- Despite the improved GAAP result, six-month Core FFO declined to $485,869 from $554,897; per-share Core FFO fell to $0.27 from $0.32. Core FFO is a company-defined non-GAAP measure and may not be comparable with other REITs’ measures.
- Cash rose from $717,104 at December 31, 2016. Total liabilities increased to $10.71 million from $10.44 million, while total debt declined modestly overall.
Outlook, risks, and unusual items
- No quantitative earnings or revenue guidance was provided. Management stated that it was actively seeking portfolio expansion opportunities, particularly in renewable-energy real estate.
- The principal contingency is ongoing litigation with Norfolk Southern Corporation (NSC) and Wheeling & Lake Erie Railroad concerning the railroad lease. The appeal was fully briefed by August 2016; no appeal outcome is reported in this filing. The 2015 trial ruling found for Power REIT on claims against it, but awarded NSC nominal damages of $1 against subsidiary P&WV on certain claims; punitive damages were denied.
- P&WV reported approximately $3.55 million of cumulative litigation expenses through June 30, 2017. It believes these costs are recoverable from NSC, but recovery depends on prevailing in the appeal; expenses are recorded as incurred. NSC continued making base rent payments of $228,750 per quarter, but continuation is not assured.
- Separate disputed lease-related indebtedness was not recorded in the GAAP balance sheet because of disagreement over when it is due. NSC records put it at approximately $16.6 million as of December 31, 2012; NSC has provided no newer amount, and P&WV says the amount is understated. P&WV also previously estimated additional amounts owed at more than $8 million, excluding potential interest and damages.
- Management said disclosure controls were effective at June 30, 2017, with no material change in internal control over financial reporting during the quarter. The filing notes REIT qualification depends on meeting requirements including distribution of at least 90% of ordinary taxable annual income.
Important facts for investors to verify
- Current status and likely outcome of the NSC appeal, potential liability, and prospects for recovering litigation expenses or disputed lease amounts.
- Whether NSC continues paying quarterly rent and whether the railroad lease remains in force on terms favorable to P&WV.
- Updated amount and collectability of the unrecorded disputed indebtedness and other claimed amounts; the disclosed figures are historical estimates, not current confirmed balances.
- Liquidity and financing capacity, including debt service, preferred dividend obligations, and funding needs for acquisitions.
- Progress, timing, and financing of any renewable-energy portfolio expansion; the filing provides no specific acquisition or earnings guidance.