Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

001-36312

(Commission File Number)

POWER REIT

(Exact name of registrant as specified in its charter)

Maryland		45-3116572
(State of Organization)		(I.R.S. Employer Identification No.)

301 Winding Road, Old Bethpage, NY		11804
(Address of principal executive offices)		(Zip Code)

(212) 750-0371

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Shares of Beneficial Interest, $0.001 par value

NYSE American

7.75% Series A Cumulative Redeemable

Perpetual Preferred Stock,

Liquidation Preference $25 per Share

NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [ ] No[ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No[ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[X]	Smaller reporting company	[X]
Emerging growth company	[ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

1,912,939 common shares, $0.001 par value, outstanding at April 24, 2020.

TABLE OF CONTENTS

	Page No.

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements (Unaudited)	3
Consolidated Balance Sheets (Unaudited)	3
Consolidated Statements of Operations (Unaudited)	4
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	5
Consolidated Statements of Cash Flows (Unaudited)	6
Notes to Unaudited Consolidated Financial Statements	7

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3 – Quantitative and Qualitative Disclosures About Market Risk	16

Item 4 – Controls and Procedures	16

PART II – OTHER INFORMATION

Item 1 – Risk Factors	17

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	17

Item 3 – Defaults Upon Senior Securities	17

Item 4 – Mine Safety Disclosures	17

Item 5 – Other Information	17

Item 6 – Exhibits	17

SIGNATURE	18

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

POWER REIT AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	March 31, 2020			December 31, 2019
ASSETS
Land	$	7,378,644		$	6,928,644
Greenhouse cultivation facilities, net of accumulated depreciation		2,304,183		$	1,619,687
Construction in progress - greenhouse cultivation facilities		1,541,850			-
Net investment in direct financing lease - railroad		9,150,000			9,150,000
Total real estate assets		20,374,677			17,698,331

Cash and cash equivalents		13,611,811			15,842,504
Prepaid expenses		37,363			14,626
Intangible assets, net of accumulated amortization		3,530,168			3,589,453
Deferred rent receivable		739,783			546,186
Other assets		16,975			16,701
TOTAL ASSETS	$	38,310,777		$	37,707,801

LIABILITIES AND EQUITY
Deferred revenue	$	146,751		$	29,342
Security deposit		391,872			114,378
Accounts payable		58,087			54,993
Accrued interest		82,053			84,313
Current portion of long-term debt, net of unamortized discount		579,626			564,682
Long-term debt, net of unamortized discount		23,732,298			23,797,191
TOTAL LIABILITIES		24,990,687			24,644,899

Series A 7.75% Cumulative Redeemable Perpetual Preferred Stock Par Value $25.00 (175,000 shares authorized; 144,636 issued and outstanding as of March 31, 2020 and December 31, 2019)		3,492,149			3,492,149

Equity:
Common Shares, $0.001 par value (100,000,000 shares authorized; 1,912,939 shares issued and outstanding at March 31, 2020 and 1,872,939 at December 31, 2019)		1,913			1,873
Additional paid-in capital		11,896,605			11,821,486
Accumulated deficit		(2,070,577	)		(2,252,606	)
Total Equity		9,827,941			9,570,753

TOTAL LIABILITIES AND EQUITY	$	38,310,777		$	37,707,801

The accompanying notes are an integral part of these unaudited consolidated financial statements.

POWER REIT AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended March 31,
	2020			2019
REVENUE
Lease income from direct financing lease – railroad	$	228,750		$	228,750
Rental income		503,202			262,527
Misc. income		55,436			3,316
TOTAL REVENUE		787,388			494,593

EXPENSES
Amortization of intangible assets		59,285			59,285
General and administrative		149,334			115,775
Property tax		4,552			5,556
Depreciation Expense		26,650			-
Interest expense		295,480			116,732
TOTAL EXPENSES		535,301			297,348

NET INCOME		252,087			197,245

Preferred Stock Dividends		(70,058	)		(70,058	)

NET INCOME ATTRIBUTABLE TO COMMON SHARES	$	182,029		$	127,187

Income Per Common Share:
Basic	$	0.10		$	0.07
Diluted	$	0.09		$	0.07

Weighted Average Number of Shares Outstanding:
Basic		1,899,313			1,870,139
Diluted		1,921,664			1,870,139

Cash dividend per Series A Preferred Share	$	0.48		$	0.48

The accompanying notes are an integral part of these unaudited consolidated financial statements.

POWER REIT AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Quarters Ended March, 31, 2020 and 2019

(Unaudited)

					Additional					Total
	Common Shares				Paid-in		Accumulated			Shareholders’
	Shares		Amount		Capital		Deficit			Equity

Balance at December 31, 2019		1,872,939	$	1,873	$	11,821,486	$	(2,252,606	)	$	9,570,753
Net Income		-		-		-		252,087			252,087
Cash Dividends on Preferred Stock		-		-		-		(70,058	)		(70,058	)
Stock-Based Compensation		40,000		40		75,118		-			75,158
Balance at March 31, 2020		1,912,939	$	1,913	$	11,896,604	$	(2,070,577	)	$	9,827,940

Balance at December 31, 2018		1,870,139	$	1,870	$	11,616,154	$	(2,919,268	)	$	8,698,756
Net Income		-		-		-		197,245			197,245
Cash Dividends on Preferred Stock		-		-		-		(70,058	)		(70,058	)
Stock-Based Compensation		-		-		63,954		-			63,954
Balance at March 31, 2019		1,870,139	$	1,870	$	11,680,108	$	(2,792,081	)	$	8,889,897

The accompanying notes are an integral part of these unaudited consolidated financial statements.

POWER REIT AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2020			2019
Operating activities
Net Income	$	252,087		$	197,245

Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets		59,285			59,285
Amortization of debt costs		8,527			6,297
Stock-based compensation		75,159			63,954
Depreciation		26,650			-

Changes in operating assets and liabilities
Deferred rent receivable		(193,596	)		(106,358	)
Prepaid expenses		(23,012	)		(53,079	)
Accounts payable		3,094			40,225
Security deposit		277,494			-
Accrued interest		(2,260	)		(2,927	)
Deferred revenue		117,409			117,195
Net cash provided by operating activities		600,837			321,837

Investing activities
Cash paid for land and greenhouse cultivation facilities		(1,161,146	)		-
Cash paid for construction in progress		(1,541,850	)		-

Net cash used in investing activities	$	(2,702,996	)	$	-

Financing Activities
Principal payment on long-term debt		(58,476	)		(13,661	)
Cash dividends paid on preferred stock		(70,058	)		(70,058	)
Net cash used in financing activities		(128,534	)		(83,719	)

Net increase (decrease) in cash and cash equivalents		(2,230,693	)		238,118

Cash and cash equivalents, beginning of period		15,842,504			1,771,011

Cash and cash equivalents, end of period	$	13,611,811		$	2,009,129

Supplemental disclosure of cash flow information:
Interest paid	$	284,693		$	115,232

The accompanying notes are an integral part of these unaudited consolidated financial statements.

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

1. GENERAL INFORMATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company, as defined below, these unaudited consolidated financial statements include all adjustments necessary to present fairly the information set forth herein. All such adjustments are of a normal recurring nature. Results for interim periods are not necessarily indicative of results to be expected for a full year.

These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes included in our latest Annual Report on Form 10-K filed with the SEC on March 30, 2020.

Power REIT (the “Registrant” or the “Trust”, and together with its consolidated subsidiaries, “we”, “us”, the “Company” or “Power REIT”, unless the context requires otherwise) is a Maryland-domiciled real estate investment trust (a “REIT”) that holds, develops, acquires and manages real estate assets related to transportation, alternative energy infrastructure and Controlled Environment Agriculture (CEA) in the United States.

The Trust is structured as a holding company and owns its assets through ten wholly-owned, special purpose subsidiaries that have been formed in order to hold real estate assets, obtain financing and generate lease revenue. As of March 31, 2020, the Trust’s assets consisted of approximately 112 miles of railroad infrastructure and related real estate which is owned by its subsidiary Pittsburgh & West Virginia Railroad (“P&WV”), approximately 601 acres of fee simple land leased to a number of utility scale solar power generating projects with an aggregate generating capacity of approximately 108 Megawatts (“MW”) and approximately 23 acres of land with approximately 90,200 sf of existing or under construction greenhouses leased to four separate medical cannabis operators. Power REIT is actively seeking to grow its portfolio of real estate related to CEA for food and cannabis production.

During the quarter ended March 31, 2020, the Trust paid a quarterly dividend of approximately $70,000 ($0.484375 per share) on Power REIT’s 7.75% Series A Cumulative Redeemable Perpetual Preferred Stock.

The Trust was formed as part of a reorganization and reverse triangular merger of P&WV that closed on December 2, 2011. P&WV survived the reorganization as a wholly-owned subsidiary of the Trust.

The Trust has elected to be treated for tax purposes as a REIT, which means that it is exempt from U.S. federal income tax if a sufficient portion of its annual income is distributed to its shareholders, and if certain other requirements are met. In order for the Trust to maintain its REIT qualification, at least 90% of its ordinary taxable annual income must be distributed to shareholders.

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).”

Principles of Consolidation

The accompanying consolidated financial statements include Power REIT and its wholly-owned subsidiaries. All intercompany balances have been eliminated in consolidation.

Fair Value

Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Trust measures its financial assets and liabilities in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

	o	Level 1 – valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow a company to sell its ownership interest back at net asset value on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities or funds.

	o	Level 2 – valuations for assets and liabilities traded in less active dealer, or broker markets, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active. Level 2 includes U.S. Treasury, U.S. government and agency debt securities, and certain corporate obligations. Valuations are usually obtained from third party pricing services for identical or comparable assets or liabilities.

	o	Level 3 – valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

In determining fair value, the Trust utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considering counterparty credit risk.

The carrying amounts of Power REIT’s financial instruments, including cash and cash equivalents, deposits, and accounts payable approximate fair value because of their relatively short-term maturities. The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates. There are no financial assets and liabilities carried at fair value on a recurring basis as of March 31, 2020 and December 31, 2019.

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

3. ACQUISITIONS

On January 30, 2020, through a newly formed wholly owned subsidiary, PW CO CanRe Mav 14, LLC, Power REIT completed the acquisition of a greenhouse property in southern Colorado (“Maverick 14”). Maverick 14 was acquired for $850,000 and is 5.54 acres with an existing greenhouse and processing facility totaling approximately 8,300 square feet approved for medical cannabis cultivation. The purchase price plus acquisition expenses of $10,424 was paid with existing working capital. As part of the transaction, the Trust agreed to fund the construction of 15,120 square feet of greenhouse space for $1,058,400 of which $414,000 is in construction in progress as of March 31, 2020 and the tenant has agreed to fund the construction of approximately 2,520 additional square feet of head-house/processing space on the property. Accordingly, Power REIT’s total capital commitment totals $1,908,400 plus acquisition expenses.

On February 20, 2020, through a newly formed wholly owned subsidiary, PW CO CanRE Sherman 6, LLC, Power REIT completed the acquisition of a property in southern Colorado (“Sherman 6”). Sherman 6 was acquired for $150,000 plus $724 in acquisition expenses and is 5.0 acres of vacant land approved for medical cannabis cultivation. As part of the transaction, the Trust agreed to fund the construction of 15,120 square feet of greenhouse space and 7,520 square feet of head-house/processing space on the property for $1,693,800 of which $498,000 is in construction in progress as of March 31, 2020 . Accordingly, Power REIT’s total capital commitment totals $1,843,800 plus acquisition costs.

On March 19, 2020, Power REIT, through a newly formed wholly owned subsidiary, PW CO CanRE Mav 5, LLC completed the acquisition of a property in southern Colorado (“Maverick 5”). Maverick 5 was acquired for $150,000 and is 5.2 acres of vacant land approved for medical cannabis cultivation. As part of the transaction, the Trust has agreed to fund the construction of 5,040 square feet of greenhouse space and 4,920 square feet of head-house/processing space on the property for $868,125 of which $125,000 is in construction in progress as of March 31, 2020 . Accordingly, Power REIT’s total capital commitment totals $1,018,125.

The acquisitions are accounted for as asset acquisitions under ASC 805-50. Power REIT has established a depreciable life for the property improvements of 20 years.

Concurrent with the closing on the acquisitions, Power REIT entered into leases with tenants that are licensed for the production of medical marijuana at the facilities

The combined straight-line annual rent from these three acquisitions is approximately $894,000. Each tenant is responsible for paying all expenses related to the properties including maintenance, insurance and taxes. The term of each lease is 20 years and provides two options to extend for additional five-year periods. The leases also have financial guarantees from affiliates of the tenant.

The following table summarizes the allocation of the purchase consideration for Maverick 14 based on the fair values of the assets acquired:

Land	$	150,000
Assets subject to depreciation:
Improvements (greenhouses)		710,424

Total Assets Acquired	$	860,424

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

4. LONG-TERM DEBT

On November 6, 2015, PWRS, one of the subsidiaries of the Trust, borrowed $10,150,000 pursuant to a bond offering (the “PWRS Bonds”).

The PWRS Bonds are secured by land and intangibles owned by PWRS and have a total obligation of $10,150,000. The PWRS Bonds carry a fixed annual interest rate of 4.34% and matures in 2034. During 2015, the Trust capitalized approximately $441,000 of expenses related to the PWRS Bonds of which approximately $97,000 was paid in cash and approximately 344,000 was incurred through issuance of debt. This amount is amortized over the life of the PWRS Bonds. As of March 31, 2020 and December 31 2019, the balance of the PWRS Bonds was approximately $8,543,000 (net of unamortized debt costs of approximately $320,000) and $8,538,000 (net of unamortized debt costs of approximately $325,000), respectively.

On July 5, 2013, PWSS, one of the subsidiaries of the Trust, borrowed $750,000 from a regional bank (the “PWSS Term Loan”). The PWSS Term Loan carries a fixed interest rate of 5.0%, a term of 10-years and amortizes based on a twenty-year principal amortization schedule. In addition to being secured by PWSS’ real estate assets, the term loan is secured by a parent guarantee from the Trust. The balance of the PWSS Term Loan as of March 31, 2020 and December 31, 2019 is approximately $572,000 (net of approximately $9,000 of capitalized debt costs which are being amortized over the life of the financing) and $579,000 (net of approximately $9,500 of capitalized debt costs which are being amortized over the life of the financing), respectively.

On December 31, 2012, as part of the Salisbury land acquisition, PWSS assumed existing municipal financing (“Municipal Debt”). The Municipal Debt has approximately 11 years remaining. The Municipal Debt has a simple interest rate of 5.0% that is paid annually, with the next payment due February 1, 2021. The balance of the Municipal Debt as of March 31, 2020 and December 31, 2019 is approximately $70,000 and $77,000 respectively.

On November 25, 2019, Power REIT, through a newly formed wholly owned subsidiary, completed a financing that is intended to provide capital for acquisition of additional properties on an accretive basis. The financing is in the form of long-term fixed rate bonds with gross proceeds of $15,500,000. The bonds carry a fixed interest rate of 4.62% and fully amortize over the life of the financing which matures in 2054 (35 years). The bonds are fully secured by the equity interest in Power REIT’s indirect wholly owned subsidiary – PWV. The total debt issuance costs of approximately $312,200 will be amortized over the life of the financing. The balance of the loan as of March 31, 2020 and December 31, 2019 is $15,126,000 (net of approximately $309,000 of capitalized debt costs) and 15,168,600 (net of approximately $311,000 of capitalized debt costs).

The approximate amount of principal payments remaining on Power REIT’s long-term debt as of March 31, 2020 is as follows for the subsequent years ended December 31:

	Total Debt
2020 (nine months remaining)	$	546,088
2021		635,511
2022		675,384
2023		1,168,091
2024		715,777
Thereafter		21,208,699
Long term debt	$	24,949,550

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

5. EQUITY AND LONG-TERM COMPENSATION

Summary of Stock Based Compensation Activity – Options

The summary of stock based compensation activity for the three months ended March 31, 2020, with respect to the Trust’s stock options, was as follows:

Summary of Activity - Options

			Weighted
	Number of		Average		Aggregate
	Options		Exercise Price		Intrinsic Value
Balance as of December 31, 2019		106,000		7.96		-
Plan Awards		-		-		-
Options Exercised		-		-		-
Balance as of March 31, 2020		106,000		7.96		261,820
Options vested at March 31, 2020		106,000		7.96		261,820

The weighted average remaining term of the options is approximately 2.36 years.

Summary of Plan Activity – Restricted Stock

The summary of Plan activity for the three months ended March 31, 2020, with respect to the Trust’s restricted stock, was as follows:

	Number of			Weighted
	Shares of			Average
	Restricted			Grant Date
	Stock			Fair Value
Balance as of December 31, 2019		24,033			6.14
Plan Awards		40,000			8.41
Restricted Stock Vested		(10,700	)		7.02
Balance as of March 31, 2020		53,333			7.67

Stock-based Compensation

During the first three months of 2020, the Trust recorded approximately $75,000 of non-cash expense related to restricted stock and options granted compared to approximately $64,000 for the first three months of 2019. As of March 31, 2020, there was approximately $409,000 of total unrecognized share-based compensation expense, which expense will be recognized through the third quarter of 2022. The Trust does not currently have a policy regarding the repurchase of shares on the open market related to equity awards and does not currently intend to acquire shares on the open market.

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

Preferred Stock Dividends

During the first three months of 2020, the Trust paid a total of approximately $70,000 of dividends to holders of Power REIT’s Series A Preferred Stock.

6. RELATED PARTY TRANSACTIONS

The Trust and its subsidiaries have hired Cohen, LLP (“Morrison Cohen”) as their legal counsel with respect to general corporate matters and the litigation with NSC. The spouse of the Trust’s Chairman, CEO, Secretary and Treasurer is a partner at Morrison Cohen. During the three months ended March 31, 2020, Power REIT (on a consolidated basis) did not pay any legal fees and costs to Morrison Cohen.

A wholly-owned subsidiary of Hudson Bay Partners, LP (“HBP”), an entity associated with the CEO of the company, David Lesser, provides the Trust and its subsidiaries with office space at no cost. Effective September 2016, the Board of Directors approved reimbursing an affiliate of HBP $1,000 per month for administrative and accounting support based on a conclusion that it would pay more for such support from a third party. Effective January 1, 2020, the Board of Directors approved increasing the amount paid to HBP to $1,750 per month based on an increased work level and the conclusion that it would pay more for such support from an unaffiliated third party for the same functions. A total of $5,250 was paid pursuant to this arrangement during the first three months ended March 31, 2020 compared to $3,000 paid during the first three months of 2019.

Under the Trust’s Declaration of Trust, the Trust may enter into transactions in which trustees, officers or employees have a financial interest, provided however, that in the case of a material financial interest, the transaction is disclosed to the Board of Trustees or the transaction shall be fair and reasonable. After consideration of the terms and conditions of the retention of Morrison Cohen described herein, and the reimbursement to HBP described herein, the independent trustees approved such arrangements having determined such arrangement are fair and reasonable and in the interest of the Trust.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” “plan,” “assume” or other similar expressions, or negatives of those expressions, although not all forward-looking statements contain these identifying words. All statements contained in this report regarding our future strategy, future operations, projected financial position, estimated future revenues, projected costs, future prospects, the future of our industries and results that might be obtained by pursuing management’s current or future plans and objectives are forward-looking statements.

You should not place undue reliance on any forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date of the filing of this report. New risks and uncertainties arise from time to time, and it is impossible for us to predict these matters or how they may affect us. Over time, our actual results, performance, financial condition or achievements may differ from the anticipated results, performance, financial condition or achievements that are expressed or implied by our forward-looking statements, and such differences may be significant and materially adverse to our security holders. Our forward-looking statements contained herein speak only as of the date hereof, and we make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Power REIT is a Maryland-domiciled REIT that owns a portfolio of real estate assets related to transportation, energy infrastructure and Controlled Environment Agriculture (CEA) in the United States. Power REIT is focused on making new acquisitions of real estate within the CEA sector related to food and cannabis production.

Power REIT is structured as a holding company and owns its assets through ten wholly-owned, special purpose subsidiaries that have been formed in order to hold real estate assets, obtain financing and generate lease revenue. Power REIT was formed as part of a reorganization and reverse triangular merger of P&WV that closed on December 2, 2011. P&WV survived the reorganization as a wholly-owned subsidiary of the Registrant. The Company’s investment strategy, which is focused on transportation, Controlled Environment Agriculture and energy infrastructure-related real estate, builds upon its subsidiary P&WV’s historical ownership of railroad real estate assets, which are currently triple-net leased to NSC.

As previously disclosed in a Form 8-K and accompanying Press Release dated July 15, 2019, Power REIT has expanded its focus on real estate acquisitions to include Controlled Environment Agriculture. CEA is an innovative method of growing plants that involves creating optimized growing environments for a given crop indoors. Power REIT intends to focus on CEA related real estate for growing food as well as cannabis.

On January 30, 2020, February 20, 2020 and March 19, 2020, Power REIT (the “Trust”) added to its portfolio of CEA properties by acquiring three properties located in southern Colorado (the “Properties”) through three newly formed indirect wholly owned subsidiaries of a wholly owned subsidiary of the Trust (each a “PropCo”).

Maverick 14 was acquired for $850,000 and is 5.54 acres with an existing greenhouse and processing facility totaling approximately 8,300 square feet approved for medical cannabis cultivation. As part of the transaction, the Trust agreed to fund the immediate expansion of 15,120 square feet of greenhouse space for $1,058,400 and the tenant has agreed to fund the construction of approximately 2,520 additional square feet of head-house/processing space on the property. Accordingly, Power REIT’s total capital commitment totals $1,908,400 plus acquisition expenses.

Sherman 6 was acquired for $150,000 and is 5.0 acres of vacant land approved for medical cannabis cultivation. As part of the transaction, the Trust agreed to fund the immediate construction of 15,120 square feet of greenhouse space and 7,520 square feet of head-house/processing space on the property for $1,693,800. Accordingly, Power REIT’s total capital commitment totals $1,843,800 plus acquisition expenses.

Maverick 5 was acquired for $150,000 and is 5.2 acres of vacant land approved for medical cannabis cultivation. As part of the transaction, the Trust agreed to fund the immediate expansion of 5,040 square feet of greenhouse space and 4,920 square feet of head-house/processing space on the property for $868,125. Accordingly, Power REIT’s total capital commitment totals $1,018,125 plus acquisition expenses.

The total combined investment across these properties will be approximately $4,770,325 plus acquisition expenses. The acquisitions and commitments to fund construction are being funded from existing working capital.

Each Propco has entered into a triple-net lease with an operator such that the tenant is responsible for paying all expenses related to the properties, including maintenance expenses, insurance and taxes. The term of each lease is 20 years and provides two options to extend for additional five-year periods. The leases also have financial guarantees from affiliates of the tenants. Each tenant intends to operate as licensed cannabis cultivation and processing facilities.

The rent for each of the Leases is structured whereby after a deferred-rent period, the rental payments provide Power REIT a full return of invested capital over the next three years in equal monthly payments. The deferred-rent period for two of the leases is six months and for the other lease is nine months. After the deferred-rent period, rent is structured to provide a 12.5% return for two of the leases and a 12.9% return for the other lease based on the original invested capital amount with annual rent increases of 3% rate per annum. At any time after year six, if cannabis is legalized at the federal level, the rent will be readjusted down to an amount equal to a 9% return on the original invested capital amount and will increase at a 3% rate per annum based on a starting date of the start of year seven.

The leases require the Tenant to maintain a medical cannabis license and operate in accordance with all Colorado and state and local regulations with respect to its operations. The leases prohibit the retail sale of the Tenant’s cannabis and cannabis-infused products from the Properties.

The acquisitions are accounted for as asset acquisitions under ASC 805-50. Power REIT has established a depreciable life for the greenhouses of 20 years.

As of March 31, 2020, the Trust’s assets consisted of approximately 112 miles of railroad infrastructure and related real estate leased to a railway company which is owned by its subsidiary Pittsburgh & West Virginia Railroad (“P&WV”), approximately 601 acres of fee simple land leased to a number of solar power generating projects with an aggregate generating capacity of approximately 108 MW and approximately 23 acres of land with 90,200 square feet of existing or under construction greenhouses leased to medical cannabis operators. Power REIT is actively seeking to grow its portfolio of Controlled Environment Agriculture for food and cannabis production.

Revenue during the first three months of 2020 and 2019 was approximately $787,000 and $495,000 respectively. Net income attributable to Common Shares during the first three months of 2020 and 2019 was approximately $182,000 and 127,000, respectively. The difference between our 2020 and 2019 results were principally attributable to the following: a $241,000 increase in of income from newly acquired properties, a $52,000 increase in miscellaneous income, offset by a $27,000 increase in depreciation expense, a $34,000 increase in general and administrative expenses and a $179,000 increase in interest expense.

The Trust’s cash outlays, other than acquisitions and dividend payments, are for general and administrative (“G&A”) expenses, which consist principally of legal and other professional fees, consultant fees, trustees’ fees, NYSE American listing fees, insurance, shareholder service company fees and auditing costs.

To meet its working capital and longer-term capital needs, Power REIT relies on cash provided by its operating activities, proceeds received from the issuance of equity securities and proceeds received from borrowings, which are typically secured by liens on acquired assets.

FUNDS FROM OPERATIONS – NON GAAP FINANCIAL MEASURES

We assess and measure our overall operating results based upon an industry performance measure referred to as Core Funds From Operations (“Core FFO”) which management believes is a useful indicator of our operating performance. This report contains supplemental financial measures that are not calculated pursuant to U.S. generally accepted accounting principles (“GAAP”), including the measure identified by us as Core FFO. Following is a definition of this measure, an explanation as to why we present it and, at the end of this section, a reconciliation of Core FFO to the most directly comparable GAAP financial measure.

Core FFO: Management believes that Core FFO is a useful supplemental measure of the Company’s operating performance. Management believes that alternative measures of performance, such as net income computed under GAAP, or Funds From Operations computed in accordance with the definition used by the National Association of Real Estate Investment Trusts (“NAREIT”), include certain financial items that are not indicative of the results provided by the Company’s asset portfolio and inappropriately affect the comparability of the Company’s period-over-period performance. These items include non-recurring expenses, such as those incurred in connection with litigation, one-time upfront acquisition expenses that are not capitalized under ASC-805 and certain non-cash expenses, including stock-based compensation expense amortization and certain up front financing costs. Therefore, management uses Core FFO and defines it as net income excluding such items. Management believes that, for the foregoing reasons, these adjustments to net income are appropriate. The Company believes that Core FFO is a useful supplemental measure for the investing community to employ, including when comparing the Company to other REITs that disclose similarly adjusted FFO figures, and when analyzing changes in the Company’s performance over time. Readers are cautioned that other REITs may use different adjustments to their GAAP financial measures than we do, and that as a result, the Company’s Core FFO may not be comparable to the FFO measures used by other REITs or to other non-GAAP or GAAP financial measures used by REITs or other companies.

CORE FUNDS FROM OPERATIONS (FFO)
(Unaudited)

	Three Months Ended March 31,
	2020		2019

Core FFO Available to Common Shares	$	351,650	$	256,723

Core FFO per Common Share		0.19		0.14

Weighted Average Shares Outstanding (basic)		1,899,313		1,870,139

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

	2020		2019
Net Income Attributable to Common Shares	$	182,029	$	127,187
Stock-Based Compensation		75,159		63,954
Interest Expense - Amortization of Debt Costs		8,527		6,297
Amortization of Intangible Asset		59,285		59,285
Depreciation on Land Improvements		26,650		-
Core FFO Available to Common Shares	$	351,650	$	256,723

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, the Trust is not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management is responsible for establishing and maintaining adequate disclosure controls and procedures (as defined in Rules 13a- 15(f) of the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A control system, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Because of the inherent limitations in all control systems, internal controls over financial reporting may not prevent or detect misstatements. The design and operation of a control system must also reflect that there are resource constraints and management is necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls.

Our management assessed the effectiveness of the design and operation of our disclosure controls and procedures. Based on our evaluation, we believe that our disclosure controls and procedures as of March 31, 2020 were effective.

Changes in Internal Control over Financial Reporting:

During the fiscal quarter ended March 31, 2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Risk Factors.

The Trust’s results of operations and financial condition are subject to numerous risks and uncertainties as described in its Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 27, 2020, which risk factors are incorporated herein by reference. You should carefully consider these risk factors in conjunction with the other information contained in this report. Should any of these risks materialize, the Trust’s business, financial condition and future prospects could be negatively impacted.

During the first quarter of 2020 a global COVID 19 pandemic emerged which has had broad financial impact on most industries and countries. To date, the Trust has not experienced any direct impact from the COVID 19 crisis. The Trust continues to monitor COVID 19 and the potential financial implications on its assets and business plans as well as on its tenants and their ability to pay rent. There can be no assurance what ultimate impact COVID 19 will have on Power REIT on a going forward basis.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

Not Applicable.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

Not Applicable.

Item 6. Exhibits.

Exhibit Number

Exhibit 31.1		Section 302 Certification for David H. Lesser

Exhibit 32.1		Section 906 Certification for David H. Lesser

Exhibit 101		Interactive data files pursuant to Rule 405 of Regulation S-T, for the quarter ended March 31, 2020: (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows and (iv) Notes to the Consolidated Financial Statements

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

POWER REIT