Power REIT — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. The filing is unaudited. Power REIT is a Maryland REIT focused on transportation and energy infrastructure real estate. Its portfolio included approximately 112 miles of railroad infrastructure leased to a railway company and approximately 601 acres leased to solar projects with about 108 MW of generating capacity.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $494,080 | $491,757 | $1,480,325 | $1,474,390 |
| Net income | $202,859 | $102,726 | $624,998 | $492,128 |
| Net income attributable to common shares | $132,801 | $32,758 | $414,824 | $282,224 |
| Basic and diluted earnings per common share | $0.07 | $0.02 | $0.23 | $0.16 |
| Core FFO available to common shares | $266,561 | $266,142 | $770,341 | $752,012 |
| Core FFO per common share | $0.15 | $0.15 | $0.42 | $0.42 |
- Cash flow: Nine-month operating cash flow was $1,025,232, compared with $1,045,150 in 2017. Financing used $564,544, primarily for $354,370 of debt principal payments and $210,174 of preferred dividends. Cash increased $460,688 to $1,607,418.
- Debt and liquidity: At September 30, total reported debt was approximately $9.56 million, including $389,627 current and $9,168,485 long-term. This compares with approximately $9.89 million at December 31, 2017. The PWRS bonds carry a fixed 4.34% rate and mature in 2034; other disclosed loans carry fixed 5.0% rates. Total assets were $21,736,324 and total liabilities were $9,753,128.
- Margins: The filing does not present a defined operating-margin measure. Total expenses were $291,221 for Q3 and $855,327 for the first nine months of 2018.
- Preferred stock: The Series A preferred stock has a 7.75% cumulative dividend. The company paid approximately $210,000 during the first nine months and declared a further quarterly dividend of $0.484375 per share, payable December 15, 2018.
Changes versus prior periods
Revenue was nearly flat year over year, while nine-month net income attributable to common shares rose approximately $133,000. Management attributed the improvement principally to approximately $125,000 less litigation expense, alongside approximately $7,000 lower interest expense and approximately $7,000 higher general and administrative expense. Q3 litigation expense was zero, compared with $120,439 in Q3 2017. Core FFO per share was unchanged for both the quarter and nine-month period.
Cash increased from $1,146,730 at December 31, 2017, and reported debt declined. Common shares outstanding increased from 1,827,339 at year-end 2017 to 1,870,139 at September 30, 2018.
Outlook, risks and unusual items
- Management stated that it is actively pursuing acquisitions in renewable energy and other infrastructure real estate. The filing provides no quantified earnings, acquisition or other financial guidance.
- The long-running NSC/Wheeling & Lake Erie railroad-lease litigation ended with the appellate court affirming the lower court ruling in 2017. P&WV was awarded only nominal damages of $1; its claims for reimbursement of litigation costs were rejected. Cumulative litigation costs were approximately $3.68 million, and no litigation expense was recorded in the first nine months of 2018.
- NSC continued to make quarterly base rent payments of $228,750. A disputed indebtedness—approximately $16.6 million as of December 31, 2012, based on NSC records—was not included in the GAAP financial statements. Following the litigation outcome, the company considers it uncollectable and expects to write it off for tax purposes; it will track the amount as a termination fee potentially due upon lease termination. The filing gives no updated amount.
- Power REIT’s REIT qualification requires distribution of at least 90% of ordinary taxable annual income, subject to other requirements. The company relies on operating cash flow, equity issuance and secured borrowings for working capital and longer-term capital needs.
- The company expects to adopt the new lease accounting standard when effective; its financial-statement impact was not yet estimable. Management said adoption of the new revenue standard did not have a material impact. Disclosure controls were assessed as effective, with no material control changes reported for the quarter.
- Related-party arrangements include no-cost office space from an affiliate associated with the CEO and $9,000 paid to that affiliate for administrative and accounting support during the nine-month period. The board’s independent trustees approved the arrangements as fair and reasonable.
Most important facts for investors to verify
- Current status and cash-payment terms of the railroad lease, including the nature and enforceability of the claimed termination fee and the lack of a recent indebtedness update.
- Whether recurring operating cash flow and available liquidity can support debt service, preferred dividends, REIT distribution requirements and planned acquisitions.
- Terms, maturity and security for each debt obligation, and any refinancing or covenant constraints not detailed in this summary.
- Acquisition pipeline and the operational, tenant and financing risks associated with the solar and railroad portfolios.
- Expected impact of the new lease accounting standard and future recognition of approximately $401,000 in unrecognized share-based compensation expense.