Power REIT — Q3 2023 Form 10-Q
Business context and period: Unaudited results for the quarter and nine months ended September 30, 2023. Power REIT owns railroad, solar-land and greenhouse properties. Cannabis-related tenant distress materially affected results and collections.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $488,531 | $2,007,645 | $1,711,161 | $6,226,114 |
| Net income (loss) | $(10,022,736) | $582,970 | $(12,553,221) | $2,525,778 |
| Net income (loss) attributable to common shareholders | $(10,185,943) | $419,762 | $(13,042,842) | $2,036,157 |
| Basic loss (income) per common share | $(3.01) | $0.12 | $(3.85) | $0.60 |
| Core FFO available to common shares | $(1,090,924) | $1,139,835 | $(3,169,796) | $3,883,776 |
- Revenue declined substantially, principally because of defaulted or troubled cannabis-related leases. Nine-month rental income from related-party tenants was zero.
- Q3 and nine-month expenses included a non-cash impairment charge of $8.24 million. Other nine-month expense increases included property maintenance, property taxes, depreciation and interest.
- Net cash used in operating activities was $2.01 million for the first nine months, versus $6.55 million provided in the prior-year period. Investing activities provided $2.39 million, mainly from the solar-property sale. Cash and restricted cash totaled $3.61 million at September 30, including $1.0 million restricted; unrestricted cash was approximately $2.6 million.
- Total liabilities were $41.61 million. Debt was $38.46 million in principal, with $16.87 million current and $20.86 million long-term net of discounts on the balance sheet. Series A preferred stock carries a 7.75% rate; approximately $490,000 of 2023 preferred dividends had accrued, and the filing reports no cash preferred dividends paid during the period.
- The filing does not provide a meaningful operating-margin measure.
Material changes and unusual items
- Power REIT recorded $8.24 million of impairment in the first nine months: $4.03 million on assets held for sale and $4.20 million on long-lived assets. Seven properties were classified as held for sale; their reported assets totaled $13.20 million.
- In January 2023, the company sold five California solar ground-lease interests for $2.5 million gross proceeds and recognized a gain of approximately $1.04 million.
- On November 1, 2023, after quarter-end, it sold a Maine greenhouse property for $4.787 million in total consideration, including $3.4 million cash and an $850,000 seller-financed note. The filing says $1.642 million of Sweet Dirt sale cash proceeds was used to pay down the debt facility.
- After quarter-end, a five-year lease was signed for the Canndescent property, with rent scheduled to increase from $18,476 monthly beginning December 2023 to $45,721 monthly beginning April 2024, followed by annual 3% escalations.
Outlook, risks and contingencies
- Going concern: Management concluded that substantial doubt existed about the company’s ability to continue as a going concern, citing losses, expected lower revenue and higher property maintenance costs. It believes cash, property sales, new leases, improved collections and potential debt or equity capital can fund near-term needs, but acknowledges uncertainty; failure to generate liquidity could harm operations.
- Debt facility: The CEA facility had $16 million drawn at September 30, with interest at the greater of 1% above prime or 8.75%, and a $1 million minimum-liquidity requirement. The borrower was not in compliance with covenants, primarily due to tenant nonperformance, but was current on payments and the lender had not accelerated the loan. Discussions on a modification were ongoing; acceleration or foreclosure could reduce revenue and liquidity. The PW Salisbury term loan maturity had been extended six months after its August 2023 maturity.
- Concentration and tenants: Norfolk Southern Railway and Regulus Solar accounted for approximately 83% of nine-month revenue collected. Cannabis-market price compression and tenant defaults have impaired rent collections; the company wrote off approximately $315,000 of straight-line rent receivable in the period.
- Legal matter: A contractor lawsuit seeks $304,244 plus interest, costs and attorneys’ fees relating to work at the Michigan greenhouse property. The filing states that the outcome and financial impact of litigation cannot be predicted.
- Related-party considerations: The CEO also leads MILC, whose affiliated tenants at Colorado, Oklahoma, Michigan and Nebraska properties generated no rental income in the first nine months. Independent trustees approved the disclosed arrangements as fair and reasonable.
- No numerical company-wide earnings or revenue guidance is provided. Management describes property sales, leasing vacant or underperforming assets, improving collections, and reducing leverage as priorities. Management reported disclosure controls were effective at September 30, 2023.
Important facts for investors to verify
- Whether the lender formally modifies the CEA facility, waives covenant breaches, or takes enforcement action—and the facility balance after the subsequent debt paydown.
- Whether property sales and new leases close on expected terms and produce sufficient cash to address the disclosed going-concern uncertainty.
- Actual rent collections, occupancy and operating costs at defaulted or vacant greenhouse properties, including related-party tenant locations.
- Whether further property impairments, litigation costs or preferred-dividend obligations affect liquidity and common-shareholder value.