Power REIT — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. 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 Norfolk Southern and 601 acres leased to solar projects totaling about 108 MW.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $491,610 | $491,623 | $1,478,505 | $1,251,547 |
| Net loss attributable to common shares | $(255,604) | $(365,686) | $(535,301) | $(1,070,116) |
| Loss per common share | $(0.15) | $(0.21) | $(0.31) | $(0.63) |
| Core FFO attributable to common shares | $242,844 | $241,827 | $688,736 | $580,521 |
| Core FFO per common share | $0.14 | $0.14 | $0.40 | $0.34 |
Third-quarter revenue was essentially unchanged year over year; nine-month revenue rose about 18%. The company attributed the lower Q3 common-share loss mainly to litigation expense declining about $226,000 and interest expense declining about $70,000, partly offset by a roughly $190,000 increase in unrealized swap loss. Core FFO is a company-defined non-GAAP measure and excludes selected expenses; it is not directly comparable to GAAP net income or necessarily to other REITs’ measures.
- Cash flow: Nine-month operating cash flow was $140,162, down from $361,723 in 2014. Investing cash flow was zero, versus $9.1 million used in 2014. Financing cash flow was a $514,356 outflow, versus $9.45 million inflow in 2014, including $209,903 of preferred dividends and $266,461 of debt principal payments.
- Liquidity: Cash and cash equivalents were $280,187 at September 30, 2015, down from $654,381 at December 31, 2014. The filing provides no formal liquidity forecast.
- Debt and obligations: Balance-sheet debt totaled approximately $9.10 million, including $1.65 million of related-party debt classified as current. The interest-rate swap liability was $717,151. Total liabilities were $10.62 million.
- Preferred stock: The company had 144,636 Series A preferred shares outstanding, with a 7.75% cumulative dividend; it paid $209,903 in preferred dividends during the first nine months.
Material changes and outlook
Nine-month net loss attributable to common shares improved by approximately $535,000 year over year, while Core FFO increased 19%. The filing reports no quantified earnings guidance. Management said it was actively pursuing additional renewable-energy and infrastructure real-estate acquisitions. It relies on operating cash flow, equity issuance and borrowings to meet working-capital and longer-term needs.
On November 6, 2015, after quarter-end, the company completed a refinancing with $10.15 million of long-term fixed-rate bonds at 4.34%, amortizing through maturity in 2034. Proceeds were intended to repay approximately $6.65 million of existing debt and its associated swap, repay the $1.65 million related-party loan plus accrued interest, and pay other accounts payable. The related-party loan was reported repaid in full. The company also declared a $0.48375-per-share preferred dividend payable December 15, 2015.
Risks, contingencies and unusual items
Railroad litigation: A court granted the railroad litigants’ summary-judgment motion in April 2015, dismissing P&WV’s claims. A trial on two remaining claims against P&WV and Power REIT was held in August 2015; the court hoped to rule in Q4 2015. The company was evaluating legal options and a possible appeal. It reported approximately $2.947 million of cumulative litigation expense, including about $352,000 in accounts payable, and said recovery from Norfolk Southern was uncertain.
P&WV asserts that additional amounts may be owed under the railroad lease, including more than $8 million related to disclosed property dispositions, plus possible interest and damages. Separately, records supplied by Norfolk Southern showed approximately $16.6 million of disputed indebtedness as of December 31, 2012; no newer amount was provided. These disputed amounts are not included in the GAAP balance sheet. The litigants also allege Power REIT is a successor in interest under the lease, which the company disputes.
The interest-rate swap is not designated for hedge accounting, so fair-value changes affect earnings. The company recorded a $189,111 unrealized swap loss for the first nine months. Management assessed disclosure controls as effective at September 30, 2015 and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- The outcome of the remaining railroad litigation, appeal prospects, potential liabilities, and whether any disputed lease-related amounts can be collected or must be paid.
- Whether the post-quarter refinancing proceeds were sufficient to retire the specified debt, swap and payables, and the resulting debt-service and liquidity position.
- The company’s ability to fund operating needs and preferred dividends with low cash balances and limited operating cash flow.
- The assumptions behind Core FFO adjustments and the effect of swap valuation and debt-cost amortization on reported GAAP results.
- The filing’s interim financial statements are unaudited, and interim results are not necessarily indicative of full-year results.