Power REIT — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited. Power REIT is a U.S. REIT focused on transportation and energy-infrastructure real estate. Its portfolio included approximately 112 miles of railroad infrastructure and 601 acres leased to solar projects with aggregate capacity of about 108 MW.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Total revenue | $491,674 | $490,769 |
| Net income (loss) | $165,215 | $(67,462) |
| Net income (loss) attributable to common shares | $95,247; $0.05 per share | $(137,430); $(0.08) per share |
| Core FFO available to common shares (non-GAAP) | $261,552; $0.15 per share | $224,703; $0.13 per share |
| Cash from operating activities | $172,594 | $143,851 |
| Cash and cash equivalents | $525,452 | $435,870 at Dec. 31, 2015 |
| Total assets / total liabilities | $21.64 million / $10.90 million | $21.31 million / $10.70 million at Dec. 31, 2015 |
Revenue was essentially flat year over year. The improvement in common-share results mainly reflected the absence of the prior-year $183,866 unrealized swap loss and lower interest expense (down about $57,000), partly offset by litigation expense up about $44,000. General and administrative expense declined about $17,000 and stock-based compensation about $18,000. Core FFO rose 16%; it is a management-defined non-GAAP measure and excludes specified items, so it may not be comparable with other REITs’ measures.
Debt carrying value was approximately $10.52 million, including $303,431 current and $10.22 million long-term. The principal financing is $10.15 million of fixed-rate PWRS bonds bearing 4.34% and maturing in 2034; other disclosed loans carry fixed 5% rates. Interest expense was $141,385 versus $199,130, while cash interest paid was $100,759 versus $56,995. Preferred dividends paid were approximately $69,968. Cash increased $89,582 during the quarter after $83,012 of financing outflows, including debt principal payments and preferred dividends.
Material changes, outlook and risks
Management is seeking acquisitions in renewable-energy and other infrastructure real estate, including solar, wind, hydroelectric, geothermal and transmission assets. The filing provides no quantified earnings or acquisition guidance. Management states that operating cash, equity issuance and borrowings are sources for working-capital and longer-term needs.
The railroad-lease dispute with Norfolk Southern Corporation (NSC) and Wheeling & Lake Erie Railroad remains a material contingency. In December 2015, the court ruled for Power REIT on claims against the Trust and for P&WV on WLE’s claims, but found for NSC on certain claims against P&WV and awarded $1 nominal damages; punitive damages were denied. Power REIT and P&WV appealed, and their appellate brief was filed April 28, 2016. Litigation costs were about $48,000 in Q1 and approximately $3.1 million cumulatively; recovery of those costs depends on the appeal. NSC continued paying $228,750 quarterly base rent, but continued payments are not assured.
NSC records indicated approximately $16.6 million of disputed indebtedness owed to P&WV as of December 31, 2012; NSC has provided no newer figure, and the amount is not recognized in the GAAP balance sheet. P&WV has also asserted additional amounts exceeding $8 million, excluding possible interest and damages. The filing provides no clear current valuation or recovery estimate for these claims. The company reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Subsequent events included a declared preferred dividend of $0.48375 per share, payable June 15, 2016, and May 5 stock awards of 600 shares to trustees other than the CEO and 40,000 shares to the CEO, subject to vesting. Common shares outstanding were 1,742,688 at March 31 and 1,784,488 as of May 11, 2016.
Important facts for investors to verify
- Current status and likely cost of the appeal, and whether any litigation-related expense recovery is ultimately obtained.
- Whether NSC continues quarterly base-rent payments and the status of the disputed railroad-lease claims and unrecognized amounts.
- Liquidity and debt-service capacity, given cash of about $525,000, debt of about $10.52 million, and ongoing preferred dividends.
- Share-count changes and the impact of the May 2016 stock awards.
- REIT qualification and distribution requirements, including the requirement to distribute at least 90% of ordinary taxable annual income.