Power REIT — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Power REIT is a Maryland REIT focused on transportation, energy infrastructure and controlled-environment agriculture (CEA). Its portfolio includes railroad infrastructure, solar land and greenhouse properties.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $1.00 million | $1.99 million; down about 49% |
| Net income (loss) | $(339,046) | $997,880 |
| Net income (loss) attributable to common shareholders | $(502,253), or $(0.15) per share | $834,673, or $0.25 per share |
| Core FFO, non-GAAP | $(632,641), or $(0.19) per common share | $1.35 million, or $0.40 per share |
| Cash from operations | $(876,840) | $3.10 million provided |
| Cash and cash equivalents | $4.31 million unrestricted; $1.00 million restricted | $5.31 million total including restricted cash |
| Debt | $38.24 million net carrying amount on balance sheet | Compared with $38.34 million at December 31, 2022 |
| Total assets / equity | $85.75 million / $35.32 million | December 31, 2022: $86.20 million / $35.60 million |
Revenue comprised $228,750 from the railroad lease, $694,692 in rental income and $81,290 in other income. The filing attributes lower rent mainly to tenant defaults and challenges in the cannabis industry. Expenses rose to $2.22 million from $987,636, including higher maintenance, property taxes, depreciation and interest. A $1.04 million gain on the Tulare property sale partly offset expenses; a $160,000 debt-modification expense was also recorded.
Operating cash outflow and the $2.41 million investing inflow from property-sale proceeds resulted in a $1.46 million increase in cash and cash equivalents, including restricted cash. Financing cash outflow was $73,545, primarily debt principal payments. The filing reports preferred dividends of $163,207 accrued in Q1 2023; no preferred dividend cash payment appears in the Q1 2023 cash-flow statement.
Material changes and developments
- Revenue declined by $980,784 year over year, including $338,016 less related-party rental income and $724,043 less unrelated-party rental income; other income increased by $81,275.
- On January 6, 2023, the Trust sold five Tulare County solar ground-lease interests for $2.5 million gross proceeds, recognizing a gain of approximately $1.04 million.
- Three properties—Canndescent, Walsenburg and Sweet Dirt—were classified as held for sale. Their reported assets totaled $14.12 million and related liabilities $714,272 at March 31, 2023.
- The Sweet Dirt property sale agreement, for $7.037 million, had not closed by its original deadline. The agreement was extended by 60 days and the purchaser provided a $300,000 non-refundable deposit; closing remained uncertain.
- Revenue concentration increased: approximately 92% of Q1 2023 consolidated revenue was collected from Sweet Dirt, Norfolk Southern Railway and Regulus Solar, versus approximately 66% from five properties in Q1 2022.
Liquidity, outlook and risks
Going concern: Management concluded that substantial doubt exists about the Trust’s ability to continue as a going concern, citing losses, expected reduced revenue and higher property maintenance expenses. It believes available cash, asset sales, improved leasing and collections, and possible debt or equity financing may fund operations and commitments, but cautions that these actions may not succeed. The filing provides no quantitative earnings or revenue guidance.
Debt facility: A March 13, 2023 amendment reduced the facility commitment from $20 million to $16 million; all $16 million was drawn. The rate became the greater of 1% above prime or 8.75%, payments are interest-only until maturity, and maturity moved to December 21, 2025. The amendment also requires at least $1 million of liquidity and repayment of a portion of proceeds from sales of borrowing-base assets. The Trust reported covenant compliance at March 31, 2023.
Key risks and contingencies: Cannabis-sector price compression and tenant financial distress have led to defaults, rent restructuring and increased property costs. The portfolio’s tenant and property concentration heightens exposure to any single default. Failure to generate liquidity could impair operations; lenders may foreclose on pledged collateral if debt obligations are not met. The filing also describes related-party relationships involving the CEO and certain tenants and vendors, and ongoing litigation in Colorado; management said it did not believe claims in that case created material exposure beyond litigation costs. No assurance is given that pending property sales will close.
Management reported disclosure controls and procedures were effective as of March 31, 2023, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the Sweet Dirt sale and other planned asset sales close, and the net proceeds available for liquidity or debt reduction.
- Cash collections, rent restructurings and occupancy across defaulted or vacant properties, especially the highly concentrated top revenue contributors.
- Compliance with the amended debt facility’s $1 million minimum-liquidity requirement, interest rate and sale-proceeds repayment terms.
- The basis and duration of management’s going-concern assessment, including actual operating cash needs and access to additional financing.
- Preferred dividend status: Q1 2023 dividends were accrued, and the filing reports $0.48 per preferred share accumulated; verify any subsequent payment or arrears developments.
- Developments in the Colorado litigation and related-party arrangements, including amounts paid and any continuing obligations.