Power REIT — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. Unaudited interim consolidated financial statements.
Business context
Power REIT is a Maryland REIT focused on transportation and energy-infrastructure real estate, including renewable-energy assets. At quarter-end, its portfolio included about 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 was pursuing additional renewable-energy and infrastructure investments.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $491,719 | $491,610 | $1,485,389 | $1,478,505 |
| Net income (loss) | $45,313 | $(185,636) | $173,897 | $(325,398) |
| Net loss attributable to common shares | $(24,655) | $(255,604) | $(36,007) | $(535,301) |
| Core FFO available to common shares | $233,484 | $242,844 | $788,382 | $688,736 |
| Core FFO per common share | $0.13 | $0.14 | $0.45 | $0.40 |
Core FFO is a company-defined non-GAAP measure; management’s reconciliation adds back items including litigation expense, stock compensation, intangible amortization and certain financing costs. Core FFO declined 4% for the quarter but increased 14% for the nine-month period; per-share changes were down 7% and up 12%, respectively.
For the nine months, operating cash flow was $789,700, principal payments on debt were $316,510, and preferred dividends paid were $209,904. Cash increased by $263,286 to $699,156. At September 30, total assets were $21.33 million and total liabilities were $10.61 million. Balance-sheet debt, net of issuance costs, comprised $362,276 current and $9,850,502 long-term. The Series A preferred stock carries a 7.75% cumulative dividend; the company paid about $210,000 during the nine-month period.
Changes versus prior comparable periods
Quarterly revenue was essentially flat year over year. Common-share loss narrowed by about $231,000, principally because the prior-year quarter included a $250,066 unrealized interest-rate-swap loss and 2016 interest expense was about $12,000 lower; litigation expense increased about $21,000. For the nine months, the company moved from a common-share loss of $535,301 to $36,007, with lower interest expense and no 2016 swap loss among the notable differences. Operating cash flow rose to $789,700 from $140,162.
Debt declined during the period, while cash rose from $435,870 at December 31, 2015 to $699,156. Common shares outstanding were 1,784,938 at September 30, 2016, versus 1,742,688 at year-end 2015.
Outlook, risks and unusual items
The filing provides no quantified earnings, acquisition or dividend guidance. Management said it was actively seeking acquisitions in renewable energy and other infrastructure. It relies on operating cash, equity issuance and borrowings to meet working-capital and longer-term needs.
Railroad litigation: The Third Circuit appeal was fully briefed by August 10, 2016. A 2015 trial-court ruling favored Power REIT on claims against the trust, but found for NSC on certain claims against subsidiary P&WV and awarded nominal damages of $1; punitive damages were denied. P&WV’s claims seeking additional amounts were previously dismissed at summary judgment. P&WV estimates that amounts arising from property dispositions exceed $8 million, while NSC’s records showed about $16.6 million of lease-related indebtedness as of December 31, 2012; the company says that amount is understated. These disputed amounts and certain additional rent are excluded from GAAP balance sheets and income statements because of disagreement over when they are due.
Litigation expense was approximately $139,000 in Q3 and $486,000 for the first nine months of 2016; cumulative litigation costs were approximately $3.6 million. P&WV believes costs are reimbursable as additional rent, but NSC has refused payment; recovery depends on prevailing in the appeal and is not assured. NSC continued to pay base rent of $228,750 per quarter, but continued payments are not assured. The filing also discloses a related-party connection involving outside counsel: the CEO’s spouse is a partner at Morrison Cohen, which received about $22,000 in legal fees and costs in Q3; independent trustees approved the engagement as fair and reasonable.
Management reported disclosure controls were effective as of September 30, 2016, with no material quarterly change in internal control over financial reporting. The company cautioned that interim results may not indicate full-year results and that forward-looking statements are subject to risks and uncertainty.
Important facts for investors to verify
- Check the Third Circuit appeal’s status and any subsequent rulings, and assess possible effects on P&WV and the trust.
- Review the disputed lease-related indebtedness, alleged additional rent and property-disposition claims; none is recorded as a GAAP asset in the reported statements.
- Monitor NSC’s quarterly base-rent payments and the concentration of railroad lease revenue.
- Assess cash needs against debt service, preferred dividends, ongoing litigation costs and the company’s acquisition plans.
- Review the company’s Core FFO definition and reconciliation alongside GAAP results; Core FFO is non-GAAP and may not be comparable with other REITs’ measures.