Power REIT — Form 10-Q Summary
Business context and reporting period
Unaudited results for the quarter and nine months ended September 30, 2019. Power REIT owns railroad and related real estate, land leased to solar projects, and greenhouse properties; it is expanding into controlled environment agriculture (CEA) for food and cannabis production. At quarter-end, its portfolio included approximately 112 railroad miles, 601 acres leased to solar projects with about 108 MW of capacity, and 7.3 acres with 18,612 square feet of greenhouses.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $563,871 | $494,080 | $1,554,075 | $1,480,325 |
| Net income | $273,693 | $202,859 | $684,396 | $624,998 |
| Net income attributable to common shares | $203,635 | $132,801 | $474,222 | $414,824 |
| Basic and diluted earnings per common share | $0.11 | $0.07 | $0.25 | $0.23 |
- Q3 revenue rose about 14% and net income about 35% year over year. For the nine-month period, revenue increased about 5% and common-share income about 14%.
- Net income as a share of revenue was approximately 48.5% for Q3 2019 versus 41.1% in Q3 2018, and 44.1% for the first nine months of 2019 versus 42.2% in 2018.
- Core FFO, a company-defined non-GAAP measure, was $334,055, or $0.18 per common share, in Q3 2019, compared with $266,561, or $0.15, in Q3 2018. Nine-month Core FFO was $846,888 ($0.45 per share), versus $770,341 ($0.42).
- Net cash provided by operating activities for the first nine months was $1,185,741, compared with $1,025,232 in 2018. Investing activities used $1,791,565, primarily for land and greenhouse improvements; financing activities used $592,046, including $381,872 of debt principal payments and $210,174 of preferred dividends. Cash fell by $1,197,870 to $573,141.
- At September 30, total assets were $22.33 million and total liabilities $9.51 million. Debt, net of unamortized discounts, totaled approximately $9.19 million, down from approximately $9.56 million at year-end 2018. Cash was $573,141; the filing reports no separate liquidity facility in the supplied text.
- Series A preferred stock carries a 7.75% cumulative rate. Preferred dividends paid in the first nine months totaled $210,174; a further quarterly dividend of $0.484375 per share was declared after quarter-end, payable December 15, 2019.
Material changes versus the prior comparable period
The principal business change was the July 12, 2019 acquisition of two southern Colorado greenhouse properties for a combined $1.77 million, plus $21,565 of acquisition expenses, funded with existing working capital. The properties were leased to a medical-cannabis operator. Management attributed the nine-month increase in common-share income principally to approximately $72,000 of income from the new properties and $17,000 lower interest expense, partly offset by $18,000 more depreciation and $10,000 higher general and administrative expense. The balance sheet also reflects $1.63 million of net land improvements and $17,711 of depreciation related to the greenhouses.
Outlook, commentary, risks, and unusual items
- Management said it is actively pursuing further CEA real estate acquisitions, including for food and cannabis production; the filing provides no quantified earnings or acquisition guidance.
- The new leases have 20-year terms, two five-year extension options, approximately $331,000 in combined straight-line annual rent, and accelerated payments intended to return the investment over the first 42 months. The tenant is responsible for property expenses; affiliate financial guarantees support the leases. The leases require continued licensing and regulatory compliance and prohibit retail sales at the properties.
- Power REIT depends on operating cash flow and may use equity issuance or secured borrowings to meet working-capital and longer-term capital needs. Cash declined materially during the period, largely in connection with the acquisition.
- The filing refers investors to risk factors in the 2018 Form 10-K and cautions that forward-looking statements are subject to uncertainties. It mentions litigation with NSC in the related-party disclosure but provides no litigation update or quantified contingency in the supplied text.
- The company reported effective disclosure controls as of September 30, 2019 and no material changes in internal control during the nine-month period. Adoption of the new lease standard did not result in a cumulative retained-earnings adjustment.
Important facts for investors to verify
- Tenant performance, licensing and regulatory compliance, and the enforceability and financial strength of the affiliates guaranteeing the Colorado leases.
- Whether accelerated rent collections and operating cash flow sustain liquidity after the acquisition, preferred dividends, and scheduled debt service.
- Debt amortization and maturities, including the secured bonds maturing in 2034 and the other loans described in the debt note.
- Progress and financing terms for further CEA acquisitions, and any developments in the NSC litigation.
- The MD&A gives approximate nine-month revenue of $1.546 million, while the statements of operations report total revenue of $1.554 million; verify the basis for this difference. The filing’s MD&A comparison appears to exclude miscellaneous income.