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
For
the quarterly period ended March 31, 2021
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
001-36312
(Commission
File Number)
POWER
REIT
(Exact
name of registrant as specified in its charter)
Maryland |
|
45-3116572 |
(State
or other jurisdiction
of
incorporation or 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 |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
Common
Shares |
|
PW |
|
NYSE
American |
|
|
|
|
|
7.75%
Series A Cumulative Redeemable Perpetual Preferred Stock,
Liquidation Preference $25 per Share |
|
PW.PRA |
|
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.
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).
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth 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).
Indicate
the number of shares outstanding of each of the issuer’s classes of
common stock, as of the latest practicable date.
3,299,533
common shares, $0.001 par value, outstanding at May 7,
2021.
TABLE
OF CONTENTS
PART I. FINANCIAL
INFORMATION
Item 1. Financial
Statements.
POWER
REIT AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(Unaudited)
|
|
March 31,
2021 |
|
|
December
31, 2020 |
|
ASSETS |
|
|
|
|
|
|
|
|
Land |
|
$ |
8,976,460 |
|
|
$ |
8,333,040 |
|
Greenhouse cultivation
and processing facilities, net of accumulated
depreciation |
|
|
19,216,552 |
|
|
|
10,305,979 |
|
Greenhouse cultivation
and processing facilities - construction in progress |
|
|
3,439,602 |
|
|
$ |
2,087,086 |
|
Net investment in
direct financing lease - railroad |
|
|
9,150,000 |
|
|
|
9,150,000 |
|
Total real
estate assets |
|
|
40,782,614 |
|
|
|
29,876,105 |
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
|
37,071,322 |
|
|
|
5,601,826 |
|
Prepaid
expenses |
|
|
64,514 |
|
|
|
89,345 |
|
Intangible assets, net
of accumulated amortization |
|
|
3,293,028 |
|
|
|
3,352,313 |
|
Deferred rent
receivable |
|
|
2,109,365 |
|
|
|
1,602,655 |
|
Other
assets |
|
|
16,975 |
|
|
|
16,975 |
|
TOTAL
ASSETS |
|
$ |
83,337,818 |
|
|
$ |
40,539,219 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
74,514 |
|
|
$ |
83,562 |
|
Accrued
interest |
|
|
77,468 |
|
|
|
80,579 |
|
Deferred rent
liability |
|
|
234,751 |
|
|
|
123,966 |
|
Tenant security
deposits |
|
|
1,237,482 |
|
|
|
1,137,481 |
|
Prepaid
rent |
|
|
155,286 |
|
|
|
105,331 |
|
Current portion of
long-term debt, net of unamortized discount |
|
|
613,165 |
|
|
|
605,272 |
|
Long-term debt, net of
unamortized discount |
|
|
23,128,061 |
|
|
|
23,192,871 |
|
TOTAL
LIABILITIES |
|
|
25,520,727 |
|
|
|
25,329,062 |
|
|
|
|
|
|
|
|
|
|
Series A 7.75%
Cumulative Redeemable Perpetual Preferred Stock Par Value $25.00
(1,675,000 shares authorized; 336,944 and 144,636 issued and
outstanding as of March 31, 2021 and December 31, 2020) |
|
|
8,489,952 |
|
|
|
3,492,149 |
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
Common
Shares, $0.001 par value (100,000,000 shares authorized; 3,299,533
shares issued and outstanding at March 31, 2021 and 1,916,139 at
December 31, 2020) |
|
|
3,299 |
|
|
|
1,916 |
|
Additional paid-in
capital |
|
|
48,739,884 |
|
|
|
12,077,054 |
|
Retained earnings
(accumulated deficit) |
|
|
583,956 |
|
|
|
(360,962 |
) |
Total
Equity |
|
|
49,327,139 |
|
|
|
11,718,008 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND EQUITY |
|
$ |
83,337,818 |
|
|
$ |
40,539,219 |
|
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, |
|
|
|
2021 |
|
|
2020 |
|
REVENUE |
|
|
|
|
|
|
Lease
income from direct financing lease – railroad |
|
$ |
228,750 |
|
|
$ |
228,750 |
|
Rental
income |
|
|
1,591,931 |
|
|
|
503,202 |
|
Other
income |
|
|
246 |
|
|
|
55,436 |
|
TOTAL
REVENUE |
|
|
1,820,927 |
|
|
|
787,388 |
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
Amortization of
intangible assets |
|
|
59,285 |
|
|
|
59,285 |
|
General and
administrative |
|
|
163,528 |
|
|
|
149,334 |
|
Property
taxes |
|
|
6,307 |
|
|
|
4,552 |
|
Depreciation
expense |
|
|
196,051 |
|
|
|
26,650 |
|
Interest
expense |
|
|
287,628 |
|
|
|
295,480 |
|
TOTAL
EXPENSES |
|
|
712,799 |
|
|
|
535,301 |
|
|
|
|
|
|
|
|
|
|
NET
INCOME |
|
|
1,108,128 |
|
|
|
252,087 |
|
|
|
|
|
|
|
|
|
|
Preferred
Stock Dividends |
|
|
(163,210 |
) |
|
|
(70,058 |
) |
|
|
|
|
|
|
|
|
|
NET INCOME
ATTRIBUTABLE TO COMMON SHAREHOLDERS |
|
$ |
944,918 |
|
|
$ |
182,029 |
|
|
|
|
|
|
|
|
|
|
Income Per Common
Share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.34 |
|
|
$ |
0.10 |
|
Diluted |
|
|
0.33 |
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
Weighted Average
Number of Shares Outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
2,755,502 |
|
|
|
1,899,313 |
|
Diluted |
|
|
2,839,474 |
|
|
|
1,921,664 |
|
|
|
|
|
|
|
|
|
|
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, 2021 and 2020
(Unaudited)
|
|
|
|
|
|
|
|
Additional |
|
|
Retained
Earnings |
|
|
Total |
|
|
|
Common
Shares |
|
|
Paid-in |
|
|
(Accumulated |
|
|
Shareholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit) |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2020 |
|
|
1,916,139 |
|
|
$ |
1,916 |
|
|
$ |
12,077,054 |
|
|
$ |
(360,962 |
) |
|
$ |
11,718,008 |
|
Net Income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,108,128 |
|
|
|
1,108,128 |
|
Cash Dividends on
Preferred Stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(163,210 |
) |
|
|
(163,210 |
) |
Issuance of Common
Shares for Cash |
|
|
1,383,394 |
|
|
|
1,383 |
|
|
|
36,596,672 |
|
|
|
- |
|
|
|
36,598,055 |
|
Stock-Based
Compensation |
|
|
- |
|
|
|
- |
|
|
|
66,158 |
|
|
|
- |
|
|
|
66,158 |
|
Balance at March 31,
2021 |
|
|
3,299,533 |
|
|
$ |
3,299 |
|
|
$ |
48,739,884 |
|
|
$ |
583,956 |
|
|
$ |
49,327,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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 |
|
|
|
2021 |
|
|
2020 |
|
Operating
activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,108,128 |
|
|
$ |
252,087 |
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
8,527 |
|
Stock-based
compensation |
|
|
66,158 |
|
|
|
75,159 |
|
Depreciation |
|
|
196,051 |
|
|
|
26,650 |
|
|
|
|
|
|
|
|
|
|
Changes in operating
assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred rent
receivable |
|
|
(506,710 |
) |
|
|
(193,596 |
) |
Deferred rent
liability |
|
|
110,785 |
|
|
|
- |
|
Prepaid
expenses |
|
|
24,831 |
|
|
|
(23,012 |
) |
Accounts
payable |
|
|
(9,048 |
) |
|
|
3,094 |
|
Tenant security
deposits |
|
|
100,001 |
|
|
|
277,494 |
|
Accrued
interest |
|
|
(3,111 |
) |
|
|
(2,260 |
) |
Prepaid
rent |
|
|
49,955 |
|
|
|
117,409 |
|
Net cash provided by
operating activities |
|
|
1,204,852 |
|
|
|
600,837 |
|
|
|
|
|
|
|
|
|
|
Investing
activities |
|
|
|
|
|
|
|
|
Cash paid for land,
greenhouse cultivation and processing facilities |
|
|
(4,752,241 |
) |
|
|
(1,161,146 |
) |
Cash paid for
greenhouse cultivation and processing facilities - construction in
progress |
|
|
(1,352,516 |
) |
|
|
(1,541,850 |
) |
Net cash used in
investing activities |
|
|
(6,104,757 |
) |
|
|
(2,702,996 |
) |
|
|
|
|
|
|
|
|
|
Financing
Activities |
|
|
|
|
|
|
|
|
Net proceeds from
issuance of common stock |
|
|
36,598,055 |
|
|
|
- |
|
Principal payment on
long-term debt |
|
|
(65,444 |
) |
|
|
(58,476 |
) |
Cash dividends paid on
preferred stock |
|
|
(163,210 |
) |
|
|
(70,058 |
) |
Net cash
provided by (used in) financing activities |
|
|
36,369,401 |
|
|
|
(128,534 |
) |
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents |
|
|
31,469,496 |
|
|
|
(2,230,693 |
) |
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents, beginning of period |
|
$ |
5,601,826 |
|
|
$ |
15,842,504 |
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents, end of period |
|
$ |
37,071,322 |
|
|
$ |
13,611,811 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Interest
paid |
|
$ |
282,212 |
|
|
$ |
284,693 |
|
Preferred stock
issuance for purchase of greenhouse cultivation and processing
facility |
|
$ |
4,997,803 |
|
|
$ |
- |
|
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 Trust, 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 24, 2021.
Power
REIT (the “Registrant” or the “Trust”, and together with its
consolidated subsidiaries, “we”, “us”, “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 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
Trust is structured as a holding company and owns its assets
through seventeen 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, 2021, 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 52 acres of land with approximately 327,000 sf of
existing or under construction greenhouses leased to twelve
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, 2021, The Trust raised approximately
gross proceeds of approximately $36.7 million and issued an
additional 1,383,394 common shares through a rights offering that
closed on February 5, 2021. The offer commenced in December, 2020
whereby shareholders of record as of December 28, 2020 could
purchase one additional share at $26.50 per share for every share
owned. See Note 6.
On
February 3, 2021, we issued 192,308 additional shares of Power
REIT’s Series A Preferred Stock as part of a transaction to acquire
a property located in Riverside County, CA (the “Canndescent
Property”) through a newly formed wholly owned subsidiary (“PW
Canndescent”). See Note 3.
During
the quarter ended March 31, 2021, the Trust paid a quarterly
dividend of approximately $163,000 ($0.484375 per share) on Power
REIT’s 7.75% Series A Cumulative Redeemable Perpetual Preferred
Stock.
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. As of December 31, 2019, the last tax return
completed to date, the Trust has a net operating loss of $17
million, which may reduce or eliminate this requirement.
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.
Income
per Common Share
Basic
net income per common share is computed by dividing net income
available to common stockholders by the weighted average number of
common shares outstanding. Diluted net income per common share is
computed similar to basic net income per common share except that
the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares
were dilutive. The dilutive effect of the Trust’s options is
computed using the treasury stock method.
The
following table sets forth the computation of basic and diluted
Income per Share:
|
|
Three
Months Ended |
|
|
|
March
31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
1,108,128 |
|
|
$ |
252,087 |
|
Preferred Stock
Dividends |
|
|
(163,210 |
) |
|
|
(70,058 |
) |
Numerator for basic
and diluted EPS - income available to common
Shareholders |
|
$ |
944,918 |
|
|
$ |
182,029 |
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Denominator for basic
EPS - Weighted average shares |
|
|
2,755,502 |
|
|
|
1,899,313 |
|
Dilutive effect of
options |
|
|
83,972 |
|
|
|
22,351 |
|
Denominator for
diluted EPS - Adjusted weighted average shares |
|
|
2,839,474 |
|
|
|
1,921,664 |
|
|
|
|
|
|
|
|
|
|
Basic
income per common share |
|
$ |
0.34 |
|
|
$ |
0.10 |
|
Diluted income per
common share |
|
$ |
0.33 |
|
|
$ |
0.09 |
|
Real
Estate Assets and Depreciation of Investment in Real
Estate
The
Trust expects that most of its transactions will be accounted for
as asset acquisitions. In an asset acquisition, the Trust is
required to capitalize closing costs and allocates the purchase
price on a relative fair value basis. For the quarter ended March
31, 2021, all acquisitions were considered to be asset
acquisitions. In making estimates of relative fair values for
purposes of allocating purchase price, the Trust utilizes a number
of sources, including independent appraisals that may be obtained
in connection with the acquisition or financing of the respective
property, our own analysis of recently acquired and existing
comparable properties in our portfolio and other market data. The
Trust also considers information obtained about each property as a
result of its pre-acquisition due diligence, marketing and leasing
activities in estimating the relative fair value of the tangible
acquired. The Trust allocates the purchase price of acquired real
estate to various components as follows:
|
● |
Land
– Based on actual purchase price adjusted to an allocation of the
relative fair value (as necessary) if acquired separately or market
research/comparables if acquired with existing property
improvements. |
POWER
REIT AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements
|
● |
Improvements
– Based on the allocation of the relative fair value of the
improvements acquired. Depreciation is calculated on a
straight-line method over the useful life of the
improvements. |
|
● |
Lease
Intangibles – The Trust considers the value of an acquired in-place
lease if in excess of the value of the land improvements and the
amortization of the lease intangible is over the remaining term of
the lease on a straight-line basis. |
|
● |
Construction
in Progress (CIP) - The Trust classifies greenhouses or buildings
under development and/or expansion as construction-in-progress
until construction has been completed and certificates of occupancy
permits have been obtained upon which the asset is then classified
as an Improvement. |
Power
REIT has several leases with tenants whereby the tenants are
responsible for implementing improvements to Power REIT’s
properties and Power REIT has committed to fund the cost of such
improvements. Power REIT capitalized the costs of such property
improvements but has determined not to capitalize interest expense
based on a determination that the amount for each project would not
be material and each project has a relatively short construction
period.
Depreciation
Depreciation
is computed using the straight-line method over the estimated
useful lives of up to 20 years for greenhouses and 39 years for
auxiliary buildings. The Trust recorded an increase in depreciation
expense for the quarter ended March 31, 2021 related to
depreciation on properties that it acquired and the placement into
service of tenant improvements at our properties. Depreciation
expense for the three months ended March 31, 2021 and March 31,
2020 is approximately $196,100 and $26,700,
respectively.
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, 2021 and
December 31, 2020.
POWER
REIT AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements
3.
ACQUISITIONS
On
January 4, 2021, Power REIT, through a newly formed wholly owned
subsidiary, PW CO CanRE Grail, LLC, (“PW Grail”), completed the
acquisition of two properties totaling 4.41 acres of vacant land
(“Grail Properties”) approved for medical cannabis cultivation in
southern Colorado for $150,000 plus acquisition costs. As part of
the transaction, the Trust agreed to fund the immediate
construction of an approximately 21,732 square foot greenhouse and
processing facility for approximately $1.69 million. On February
23, 2021, PW Grail amended the Grail Project Lease making
approximately $518,000 of more funds available to construct an
additional 6,256 square feet to the cannabis cultivation and
processing space. Accordingly, the Trust’s total capital commitment
is approximately $2.4 million. As of March 31, 2021, the total
construction in progress that was funded by Power REIT is
approximately $407,000.
On
January 14, 2021, Power REIT, through a newly formed wholly owned
subsidiary, PW CO CanRE Apotheke, LLC, (“PW Apotheke”), completed
the acquisition of a property totaling 4.31 acres of vacant land
(“Apotheke Property”) approved for medical cannabis cultivation in
southern Colorado for $150,000 plus acquisition costs. As part of
the transaction, the Trust agreed to fund the immediate
construction of an approximately 21,548 square foot greenhouse and
processing facility for approximately $1.66 million. Accordingly, PW Apotheke’s total capital
commitment is approximately $1.81 million. As of March 31,
2021, the total construction in progress that was funded by Power
REIT is approximately $376,000.
On February 3, 2021, Power REIT, through a newly formed wholly
owned subsidiary, PW CA CanRE Canndescent LLC, (“PW Canndescent”),
completed the acquisition of a 37,000 square foot greenhouse
cultivation facility on a .85 acre of property located in Riverside
County, CA (the “Canndescent Property”). The purchase price was
$7.685 million and we paid for the property with $2.685 million
cash on hand and the issuance of 192,308 shares of Power REIT’s
Series A Preferred Stock.
The
following table summarized the preliminary allocation of the
purchase consideration for the Canndescent Property based on the
relative fair values of the assets acquired:
Land |
|
$ |
258,420 |
|
Assets Subject to
Depreciation: |
|
|
|
|
Improvements
(Greenhouses / Processing Facilities) |
|
|
7,426,580 |
|
Acquisition Costs
Capitalized |
|
|
92,289 |
|
Total Assets
Acquired |
|
$ |
7,777,289 |
|
On
March 12, 2021, Power REIT, through a newly formed wholly owned
subsidiary, PW CO CanRE Gas Station, LLC, (“PW Gas Station”),
completed the acquisition of a property totaling 2.2 acres of
vacant land (“Gas Station Property”) approved for medical cannabis
cultivation in southern Colorado for $85,000 plus acquisition
costs. As part of the transaction, the Trust agreed to fund the
immediate construction of an approximately 24,512 square foot
greenhouse and processing facility for approximately $2.03 million.
Accordingly, PW Gas Station’s
total capital commitment is approximately $2.1 million. As
of March 31, 2021, the total construction in progress that was
funded by Power REIT is approximately $158,000.
The acquisitions described above are accounted for as asset
acquisitions under ASC 805-50. Power REIT has established a
depreciable life for the property improvements of 20 years for
greenhouses and 39 years for buildings.
Concurrent with the closing of the acquisitions, Power REIT entered
in leases with tenants that are licensed for the production of
medical cannabis cultivation at the facilities. The combined annual
straight-line rent from these four acquisitions and one expansion
is approximately $2.3 million. Each tenant is responsible for
paying all expenses related to the properties including
maintenance, insurance and taxes. The term of the Grail, Apotheke
and Gas Station leases are 20 years with options to extend for
additional five-year periods and have financial guarantees from
affiliates of the tenants, whereas, the Canndescent lease was
already in place and assigned to the Trust.
POWER
REIT AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements
4.
LONG-TERM DEBT
On
December 31, 2012, as part of the Salisbury land acquisition, PW
Salisbury Solar, LLC (“PWSS”) assumed existing municipal financing
(“Municipal Debt”). The Municipal Debt has approximately 10 years
remaining. The Municipal Debt has a simple interest rate of 5.0%
that is paid annually, with the next payment due February 1, 2022.
The balance of the Municipal Debt as of March 31, 2021 and December
31, 2020 is approximately $64,000 and $70,000
respectively.
In
July 2013, PWSS borrowed $750,000 from a regional bank (the “PWSS
Term Loan”). The PWSS Term Loan carries a fixed annual interest
rate of 5.0% for a term of 10 years and amortizes based on a
20-year principal amortization schedule. The loan is secured by
PWSS’ real estate assets and a parent guarantee from the Trust. The
balance of the PWSS Term Loan as of March 31, 2021 and December 31,
2020 is approximately $544,000 (net of approximately $6,200 of
capitalized debt costs which are being amortized over the life of
the financing) and $551,000 (net of approximately $6,800 of
capitalized debt costs which are being amortized over the life of
the financing), respectively.
On
November 6, 2015, PWRS entered into a loan agreement (the “2015
PWRS Loan Agreement”) with a lender for $10,150,000 (the “2015 PWRS
Loan”). The 2015 PWRS Loan is secured by land and intangibles owned
by PWRS. PWRS issued a note to the benefit of the lender dated
November 6, 2015 with a maturity date of October 14, 2034 and an
annual 4.34% interest rate. As of March 31, 2021, and December 31,
2020, the balance of the 2015 PWRS Loan was approximately
$8,185,000 (net of unamortized debt costs of approximately
$297,000) and $8,183,000 (net of unamortized debt costs of
approximately $303,000), respectively.
On
November 25, 2019, Power REIT, through a newly formed subsidiary,
PW PWV Holdings LLC (“PW PWV”), entered into a loan agreement (the
“PW PWV Loan Agreement”) with a lender for $15,500,000 (the “PW PWV
Loan”). The PW PWV Loan is secured by pledge of PW PWV’s equity
interest in P&WV, its interest in the Railroad Lease and a
security interest in a deposit account (the “Deposit Account”)
pursuant to a Deposit Account Control Agreement dated November 25,
2019 into which the P&WV rental proceeds were deposited.
Pursuant to the Deposit Account Control Agreement, P&WV has
instructed its bank to transfer all monies deposited in the Deposit
Account to the escrow agent as a dividend/distribution payment
pursuant to the terms of the PW PWV Loan Agreement. The PW PWV Loan
is evidenced by a note issued by PW PWV to the benefit of the
lender for $15,500,000, with a fixed annual interest rate of 4.62%
and the capitalized debt costs of $312,000 which is amortized over
the life of the financing which matures in 2054. The balance of the
loan as of March 31, 2021 and December 31, 2020 is $14,948,000 (net
of approximately $300,000 of capitalized debt costs) and 14,994,000
(net of approximately $302,000 of capitalized debt
costs).
The
approximate amount of principal payments remaining on Power REIT’s
long-term debt as of March 31, 2021 is as follows for the
subsequent years ending December 31:
|
|
Total
Debt |
|
|
|
|
|
2021 (9 months
remaining) |
|
|
569,956 |
|
2022 |
|
|
675,374 |
|
2023 |
|
|
1,168,408 |
|
2024 |
|
|
715,777 |
|
2025 |
|
|
755,634 |
|
Thereafter |
|
|
20,459,470 |
|
Long term
debt |
|
$ |
24,344,619 |
|
POWER
REIT AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements
5.
LEASES
Information
as Lessor Under ASC Topic 842
To
generate positive cash flow, as a lessor, the Trust leases its
facilities to tenants in exchange for payments. The Trust’s leases
for its railroad, solar farms and greenhouse cultivation facilities
have an average lease term ranging between 20 and 99 years.
Payments from the Trust’s leases are recognized on a straight-line
basis over the terms of the respective leases. Total revenue from
its leases recognized for the quarter ended March 31, 2021 is
approximately $1.82 million.
The
aggregate annual cash to be received by the Trust on all leases
related to its portfolio as of March 31, 2021 is as follows for the
subsequent years ending December 31:
|
|
|
Total |
|
2021 (9 months
remaining) |
|
$ |
7,488,252 |
|
2022 |
|
$ |
12,220,108 |
|
2023 |
|
$ |
11,770,002 |
|
2024 |
|
$ |
8,333,375 |
|
2025 |
|
$ |
6,420,368 |
|
Thereafter |
|
$ |
111,801,966 |
|
Total |
|
$ |
158,034,071 |
|
6.
EQUITY AND LONG-TERM COMPENSATION
Increase
in Authorized Preferred Stock
On
January 7, 2021, the Trust filed Articles Supplementary with the
State of Maryland to classify an additional 1,500,000 unissued
shares of beneficial interest, par value $0.001 per share, 7.75%
Series A Preferred Stock, such that the Trust shall now have
authorized an aggregate of 1,675,000 shares of Series A Preferred
Stock, all of which shall constitute a single series of Series A
Preferred Stock. On February 3, 2021, as part of the closing
for the Canndescent acquisition, the Trust issued 192,308 shares of
Power REIT’s Series A Preferred Stock with a fair value of
$5,000,008 less $2,205 of costs.
Stock
Issued for Cash
During
the quarter ended March 31, 2021, the Trust raised gross proceeds
of approximately $36.7 million and issued an additional 1,383,394
common shares through a rights offering that closed on February 5,
2021. Offering expenses of $61,886 were incurred in connection with
the offering and recorded as contra-equity netting against the
proceeds of offering. Hudson Bay Partner, LP (“HBP”) which is 100%
owned by David Lesser, is the Managing Member of PW RO Holdings LLC
which participated in the rights offering and acquired 132,074
shares, is the Managing Member of PW RO Holdings 2 LLC which
participated in the rights offering and acquired 155,000 shares and
is the Managing Member of PW RO Holdings 3 LLC which participated
in the rights offering and acquired 123,020 shares. HBP became the
Co-Managing Member of 13310 LMR2A (“13310”) after the Trust
acquired the Canndescent property from 13310 which participated in
the rights offering and acquired 68,679 shares.
POWER
REIT AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements
Summary
of Stock Based Compensation Activity – Options
The
summary of stock based compensation activity for the quarter ended
March 31, 2021, with respect to the Trust’s stock options, is as
follows:
Summary
of Activity - Options
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Number
of |
|
|
Average |
|
|
Aggregate |
|
|
|
Options |
|
|
Exercise
Price |
|
|
Intrinsic
Value |
|
Balance as of December
31, 2020 |
|
|
106,000 |
|
|
|
7.96 |
|
|
|
- |
|
Plan
Awards |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Options
Exercised |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance as of March
31, 2021 |
|
|
106,000 |
|
|
|
7.96 |
|
|
|
3,951,680 |
|
Options vested at
March 31, 2021 |
|
|
106,000 |
|
|
|
7.96 |
|
|
|
3,951,680 |
|
The
weighted average remaining term of the options is approximately
1.36 years.
Summary
of Plan Activity – Restricted Stock
The
summary of Plan activity for the quarter ended March 31, 2021, with
respect to the Trust’s restricted stock, was as follows:
Summary of
Activity - Restricted Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of |
|
|
Weighted |
|
|
|
Shares
of |
|
|
Average |
|
|
|
Restricted |
|
|
Grant
Date |
|
|
|
Stock |
|
|
Fair
Value |
|
Balance as of December
31, 2020 |
|
|
35,066 |
|
|
|
8.76 |
|
Plan
Awards |
|
|
- |
|
|
|
- |
|
Restricted
Stock Vested |
|
|
(7,400 |
) |
|
|
8.94 |
|
Balance as of March
31, 2021 |
|
|
27,666 |
|
|
|
8.71 |
|
Stock-based
Compensation
During
the quarter ended March 31, 2021, the Trust recorded approximately
$66,000 of non-cash expense related to restricted stock and options
granted compared to approximately $75,000 for quarter ended March
31, 2020. As of March 31, 2021, there was approximately $241,000 of
total unrecognized share-based compensation expense, which will be
recognized through the second quarter of 2023. 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’s 2020 Equity Incentive Plan, which superseded the 2012 Equity
Incentive Plan, was adopted by the Board on May 27, 2020 and
approved by the shareholders on June 24, 2020. It provides for the
grant of the following awards: (i) Incentive Stock Options; (ii)
Nonstatutory Stock Options; (iii) SARs; (iv) Restricted Stock
Awards; (v) RSU Awards; (vi) Performance Awards; and (vii) Other
Awards. The Plan’s purpose is to secure and retain the services of
Employees, Directors and Consultants, to provide incentives for
such persons to exert maximum efforts for the success of the Trust
and to provide a means by which such persons may be given an
opportunity to benefit from increases in value of the common Stock
through the granting of awards. As of March 31, 2021, the aggregate
number of shares of Common Stock that may be issued pursuant to
outstanding awards is currently 235,917.
POWER
REIT AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements
Preferred
Stock Dividends
During
the quarter ended March 31, 2021, the Trust paid a total of
approximately $163,000 of dividends to holders of Power REIT’s
Series A Preferred Stock.
7.
RELATED PARTY TRANSACTIONS
The
Trust and its subsidiaries have hired Morrison Cohen, LLP
(“Morrison Cohen”) as their legal counsel with respect to general
corporate matters. The spouse of the Trust’s Chairman, CEO,
Secretary and Treasurer is a partner at Morrison Cohen. During the
quarter ended March 31, 2021, 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 Trust, David Lesser, provides
the Trust and its subsidiaries with office space at no cost.
Effective September 2016, the Board of Trustees 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. The amount paid each month has
increased over time with the Board of Trustees approval and
effective February 23, 2021, the monthly amount paid to the
affiliate of HBP increased to $4,000. During the quarter ended
March 31, 2021, with the Board of Trustee’s approval, a special
one-time payment of $15,000 was made to cover the time allocated to
the processing of the Rights Offering. A total of $24,000 was paid
pursuant to this arrangement during the quarter ended March 31,
2021 compared to $5,250 paid during the first quarter of
2020.
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 to determine if the transaction is 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 arrangements are fair and
reasonable and in the interest of the Trust.
8.
SUBSEQUENT EVENTS
On
April 20, 2021, we acquired two properties (the “Cloud Nine
Properties”) for $300,000 located in southern Colorado through a
newly formed wholly owned subsidiary (“PW Cloud Nine”) of our
wholly owned subsidiary which is comprised of approximately 4.0
acres. As part of the transaction, we agreed to fund the immediate
construction of an approximately 38,440 square foot greenhouse and
processing facility for approximately $2.95 million including the
land acquisition cost. Concurrent with the acquisition, PW Cloud
Nine entered into a 20-year “triple-net” lease (the “Cloud Nine
Lease”) with Cloud Nine Farms LLC (“Cloud Nine”) which will operate
a cannabis cultivation facility. The lease requires Cloud Nine to
pay all property related expenses including maintenance, insurance
and taxes. After the initial 20-year term, the Cloud Nine Lease
provides two, five-year renewal options. The lease also has a
personal guarantee from the owner of Cloud Nine.
On
April 30, 2021, the Registrant declared a quarterly dividend of
$0.484375 per share on Power REIT’s 7.75% Series A Cumulative
Redeemable Perpetual Preferred Stock payable on June 15, 2021 to
shareholders of record on May 15, 2021.
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 (this “Report”) 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, including those identified below, under
Part II, Item 1A. “Risk Factors” and elsewhere in this Report, and
those identified under Part I, Item 1A of the 2020 10-K. 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
We
are a Maryland-domiciled Real Estate Investment Trust (REIT) that
owns a portfolio of real estate assets related to transportation,
energy infrastructure and Controlled Environment Agriculture (CEA)
in the United States. We are focused on making new acquisitions of
real estate within the CEA sector related to food and cannabis
production.
We
are structured as a holding company and own our assets through
twelve wholly-owned, special purpose subsidiaries that have been
formed in order to hold real estate assets, obtain financing and
generate lease revenue. We were formed as part of a reorganization
and reverse triangular merger of Pittsburgh & West Virginia
Railroad (“P&WV”) that closed on December 2, 2011. P&WV
survived the reorganization as our wholly-owned subsidiary. Our
investment strategy, which is focused on transportation, CEA and
energy infrastructure-related real estate, builds upon P&WV’s
historical ownership of railroad real estate assets, which are
currently triple-net leased to Norfolk Southern Railroad (“NSC”).
We typically enter into long-term triple net leases where tenants
are responsible for all ongoing costs related to the property,
including insurance, taxes and maintenance.
Prior
to 2019, our focus was on the acquisition of real estate assets
related to transportation and energy infrastructure. In 2019 we
expanded the focus of our real estate acquisitions to include CEA
properties in the United States. CEA is an innovative method of
growing plants that involves creating optimized growing
environments for a given crop indoors. We are currently focused on
making new acquisitions of real estate within the CEA sector
related to food and cannabis cultivation.
As of
March 31, 2021, our portfolio consisted of approximately 112 miles
of railroad infrastructure and related real estate leased to a
railway company which is owned by our subsidiary, 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 52 acres of land
with 327,000 square feet of existing or under construction
greenhouses leased to medical cannabis operators. We are actively
seeking to grow our portfolio of CEA for food and cannabis
production.
During
the quarter ended March 31, 2021, we raised gross proceeds of
approximately $36.7 million and issued an additional 1,383,394
common shares through a rights offering that closed on February 5,
2021. The offer commenced in December, 2020 whereby shareholders of
record as of December 28, 2020 could purchase one additional share
at $26.50 per share for every share owned.
Recent Developments
During the first quarter ended March 31, 2021, we added to our
portfolio of CEA properties by acquiring four new properties and
expanding one of the leases on a newly acquired
property.
On
January 4, 2021, through a newly formed wholly owned subsidiary, PW
CO CanRE Grail, LLC, (“PW Grail”), we completed the acquisition of
two properties totaling 4.41 acres of vacant land (“Grail
Properties”) approved for medical cannabis cultivation in southern
Colorado for $150,000 plus acquisition costs. As part of the
transaction, we agreed to fund the immediate construction of an
approximately 21,732 square foot greenhouse and processing facility
for approximately $1.69 million. Accordingly, PW Grail’s total capital
commitment is approximately $1.84 million. Concurrent with
the acquisition, PW Grail entered into a 20-year “triple-net” lease
(the “Grail Project Lease”) with The Grail Project LLC (“Grail
Project”) which will operate a cannabis cultivation facility. The
lease requires Grail Project to pay all property related expenses
including maintenance, insurance and taxes. After the initial
20-year term, the Grail Project’s Lease provides four, five-year
renewal options. The rent for the Grail Project Lease is structured
whereby after a six-month free-rent period, the rental payments
provide Power REIT a full return of invested capital over the next
three years in equal monthly payments. After the 42nd month, rent
is structured to provide a 12.9% return of the original invested
capital with 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 of the
original invested capital and will increase at a 3% rate per annum
on a starting date of the start of year seven. The lease requires the tenant to maintain
a medical cannabis license and operate in accordance with all
Colorado and local regulations with respect to its operations. The
lease prohibits the retail sale of the tenant’s cannabis and
cannabis-infused products from the Grail Properties. The
lease also has personal guarantees from the owners of the Grail
Project. The Grail Project
Lease is structured to provide an annual straight-line rent of
approximately $350,000, representing an estimated yield on costs of
over 18%. The project is currently under construction and should be
completed by July 2021.
On
February 23, 2021, we amended the Grail Project Lease making
approximately $518,000 of more funds available to construct an
additional 6,256 square feet to the cannabis cultivation and
processing space. Once completed, our total capital commitment will
be approximately $2.4 million. As part of the agreement, PW Grail
and Grail Project have amended the Lease (“Grail Amended Lease”)
whereby after an eight-month period, the additional rental payments
provide PW Grail with a full return of its original invested
capital over the next three years and thereafter, provide a 12.9%
return increasing 3% per annum. The additional annual straight-line
rent of approximately $105,000 represents an estimated yield on
costs of over 18% over our investment.
On
January 14, 2021, through a newly formed wholly owned subsidiary,
PW CO CanRE Apotheke, LLC, (“PW Apotheke”), we completed the
acquisition of a property totaling 4.31 acres of vacant land
(“Apotheke Property”) approved for medical cannabis cultivation in
southern Colorado for $150,000 plus acquisition costs. As part of
the transaction, we agreed to fund the immediate construction of an
approximately 21,548 square foot greenhouse and processing facility
for approximately $1.66 million. Accordingly, PW Apotheke’s total capital
commitment is approximately $1.81 million. Concurrent with
the acquisition, PW Apotheke entered into a 20-year “triple-net”
lease (the “Apotheke Lease”) with Dom F, LLC (“Dom F”) which will
operate a cannabis cultivation facility. The lease requires Dom F
to pay all property related expenses including maintenance,
insurance and taxes. After the initial 20-year term, the Apotheke
Lease provides two, five-year renewal options. The rent for the
Apotheke Lease is structured whereby after an eight-month free-rent
period, the rental payments provide Power REIT a full return of
invested capital over the next three years in equal monthly
payments. After the 44th month, rent is structured to
provide a 12.9% return of the original invested capital with
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 of the original
invested capital and will increase at a 3% rate per annum on a
starting date of the start of year seven. The lease requires the tenant to maintain
a medical cannabis license and operate in accordance with all
Colorado and local regulations with respect to its operations. The
lease prohibits the retail sale of the tenant’s cannabis and
cannabis-infused products from the Apotheke Property. The
lease also has personal guarantees from the owners of Dom F.
The Apotheke Lease is
structured to provide an annual straight-line rent of approximately
$342,000, representing an estimated yield on costs of over 18%. The
project is currently under construction and should be completed by
September, 2021.
On February 3, 2021, we acquired a property located in Riverside
County, CA (the “Canndescent Property”) through a newly formed
wholly owned subsidiary (“PW Canndescent”). The purchase price was
$7.685 million and we paid for the .85 acre property with $2.685
million cash on hand and the issuance of 192,308 shares of Power
REIT’s Series A Preferred Stock. PW Canndescent received an
assignment of a lease (the “Canndescent Lease”) to allow the tenant
(“Canndescent”) to operate the 37,000 square foot greenhouse
cultivation facility on the Canndescent Property. Canndescent is a
premium flower brand for luxury cannabis in California. The
Canndescent Lease requires Canndescent to pay all property related
expenses including maintenance, insurance and taxes. The rent for
the Canndescent Lease is structured to provide straight-line annual
rent of approximately $1,074,000.
The
following table summarized the preliminary allocation of the
purchase consideration for the Canndescent Property based on the
relative fair values of the assets acquired:
Land |
|
$ |
258,420 |
|
Assets Subject to
Depreciation: |
|
|
|
|
Improvements
(Greenhouses / Processing Facilities) |
|
|
7,426,580 |
|
Acquisition Costs
Capitalized |
|
|
92,289 |
|
Total Assets
Acquired |
|
$ |
7,777,289 |
|
On
March 12, 2021, through a newly formed wholly owned subsidiary, PW
CO CanRE Gas Station, LLC, (“PW Gas Station”), we purchased a
property totaling 2.2 acres of vacant land (“Gas Station Property”)
approved for medical cannabis cultivation in southern Colorado for
$85,000 plus acquisition costs. As part of the transaction, we
agreed to fund the immediate construction of an approximately
24,512 square foot greenhouse and processing facility for
approximately $2.03 million. Accordingly, PW Gas Station’s total
capital commitment is approximately $2.1 million. Concurrent
with the acquisition, PW Gas Station entered into a 20-year
“triple-net” lease (the “Gas Station Lease”) with The Gas Station,
LLC (“Gas Station”) which will operate a cannabis cultivation
facility. The lease requires Gas Station to pay all property
related expenses including maintenance, insurance and taxes. After
the initial 20-year term, the Gas Station’s Lease provides two,
five-year renewal options. The rent for the Gas Station Lease is
structured whereby after a seven-month free-rent period, the rental
payments provide Power REIT a full return of invested capital over
the next three years in equal monthly payments. After the
43rd month, rent is structured to provide a 12.9% return
of the original invested capital with 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 of the original invested capital and will increase
at a 3% rate per annum on a starting date of the start of year
seven. The lease requires the
tenant to maintain a medical cannabis license and operate in
accordance with all Colorado and local regulations with respect to
its operations. The lease prohibits the retail sale of the tenant’s
cannabis and cannabis-infused products from the Gas Station
Property. The lease also has personal guarantees from the
owners of the Gas Station. The Gas Station Lease is structured to
provide an annual straight-line rent of approximately $400,000,
representing an estimated yield on costs of over 18%. The project
is currently under construction and should be completed by
September, 2021.
The acquisitions described above are accounted for as asset
acquisitions under ASC 805-50. Power REIT has established a
depreciable life for the property improvements of 20 years for
greenhouses and 39 years for buildings.
The
following table is a summary of the Trust’s properties as of March
31, 2021:
Property
Type/Name |
|
Location |
|
Acres |
|
|
Size1 |
|
|
Lease
Start |
|
Term
(yrs)2 |
|
|
Rent
($) |
|
|
Gross Book
Value |
|
Railroad
Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P&WV
(Norfolk Southern) |
|
PA/WV/OH |
|
|
|
|
|
112
miles |
|
|
Oct-64 |
|
|
99 |
|
|
$ |
915,000 |
|
|
$ |
9,150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar Farm
Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PWSS |
|
Salisbury,
MA |
|
54 |
|
|
|
5.7 |
|
|
Dec-11 |
|
|
22 |
|
|
|
89,494 |
|
|
|
1,005,538 |
|
PWTS |
|
Tulare County,
CA |
|
18 |
|
|
|
4.0 |
|
|
Mar-13 |
|
|
25 |
|
|
|
32,500 |
|
|
|
310,000 |
|
PWTS |
|
Tulare County,
CA |
|
18 |
|
|
|
4.0 |
|
|
Mar-13 |
|
|
25 |
|
|
|
37,500 |
|
|
|
310,000 |
|
PWTS |
|
Tulare County,
CA |
|
10 |
|
|
|
4.0 |
|
|
Mar-13 |
|
|
25 |
|
|
|
16,800 |
|
|
|
310,000 |
|
PWTS |
|
Tulare County,
CA |
|
10 |
|
|
|
4.0 |
|
|
Mar-13 |
|
|
25 |
|
|
|
29,900 |
|
|
|
310,000 |
|
PWTS |
|
Tulare County,
CA |
|
44 |
|
|
|
4.0 |
|
|
Mar-13 |
|
|
25 |
|
|
|
40,800 |
|
|
|
310,000 |
|
PWRS |
|
Kern County,
CA |
|
447 |
|
|
|
82.0 |
|
|
Apr-14 |
|
|
20 |
|
|
|
803,117 |
|
|
|
9,183,548 |
|
|
|
Solar Farm Land
Total |
|
601 |
|
|
|
107.7 |
|
|
|
|
|
|
|
|
$ |
1,050,111 |
|
|
$ |
11,739,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEA
(Cannabis) Property34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JAB - Tam Lot
18 |
|
Crowley County,
CO |
|
2.11 |
|
|
|
12,996 |
|
|
Jul-19 |
|
|
20 |
|
|
|
201,810 |
|
|
|
1,075,000 |
|
JAB - Mav Lot
1 |
|
Crowley County,
CO |
|
5.20 |
|
|
|
16,416 |
|
|
Jul-19 |
|
|
20 |
|
|
|
294,046 |
|
|
|
1,594,582 |
|
Grassland - Mav Lot
14 |
|
Crowley County,
CO |
|
5.54 |
|
|
|
26,940 |
|
|
Feb-20 |
|
|
20 |
|
|
|
354,461 |
|
|
|
1,908,400 |
|
Chronic - Sherman Lot
6 |
|
Crowley County,
CO |
|
5.00 |
|
|
|
26,416 |
|
|
Feb-20 |
|
|
20 |
|
|
|
375,159 |
|
|
|
1,995,101 |
|
Original - Mav Lot
5 |
|
Crowley County,
CO |
|
5.20 |
|
|
|
15,000 |
|
|
Apr-20 |
|
|
20 |
|
|
|
256,743 |
|
|
|
1,358,664 |
|
Sweet Dirt
495 |
|
York County,
ME |
|
3.06 |
|
|
|
35,600 |
|
|
May-20 |
|
|
20 |
|
|
|
919,849 |
|
|
|
4,917,134 |
|
Sweet Dirt
505 |
|
York County,
ME |
|
3.58 |
|
|
|
12,638 |
|
|
Sep-20 |
|
|
20 |
|
|
|
373,055 |
|
|
|
1,964,723 |
|
Fifth Ace - Tam Lot
7 |
|
Crowley County,
CO |
|
4.32 |
|
|
|
18,000 |
|
|
Sep-20 |
|
|
20 |
|
|
|
261,963 |
|
|
|
1,364,585 |
|
Monte Fiore - Tam Lot
13 |
|
Crowley County,
CO |
|
2.37 |
|
|
|
9,384 |
|
|
Oct-20 |
|
|
20 |
|
|
|
87,964 |
|
|
|
425,000 |
|
Monte Fiore - Tam Lot
14 |
|
Crowley County,
CO |
|
2.09 |
|
|
|
24,360 |
|
|
Oct-20 |
|
|
20 |
|
|
|
490,700 |
|
|
|
2,637,300 |
|
Green Mile - Tam Lot
19 |
|
Crowley County,
CO |
|
2.11 |
|
|
|
18,528 |
|
|
Dec-20 |
|
|
20 |
|
|
|
252,061 |
|
|
|
1,311,116 |
|
Grail Project - Tam
Lot 4 & 5 |
|
Crowley County,
CO |
|
4.41 |
|
|
|
27,988 |
|
|
Jan-21 |
|
|
20 |
|
|
|
454,602 |
|
|
|
2,360,112 |
|
Apotheke - Tam Lot
8 |
|
Crowley County,
CO |
|
4.31 |
|
|
|
21,548 |
|
|
Jan-21 |
|
|
20 |
|
|
|
341,953 |
|
|
|
1,813,893 |
|
Canndescent |
|
Riverside County,
CA |
|
0.85 |
|
|
|
37,000 |
|
|
Feb-21 |
|
|
5 |
|
|
|
1,073,318 |
|
|
|
7,685,000 |
|
Gas
Station - Tam Lot 3 |
|
Crowley County,
CO |
|
2.20 |
|
|
|
24,512 |
|
|
Mar-21 |
|
|
20 |
|
|
|
399,748 |
|
|
|
2,118,717 |
|
|
|
CEA
Total |
|
52.35 |
|
|
|
327,326 |
|
|
|
|
|
|
|
|
$ |
6,137,432 |
|
|
$ |
34,529,327 |
|
Grand
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,102,543 |
|
|
$ |
55,418,413 |
|
|
1
Solar Farm Land size represents Megawatts and CEA property size
represents square feet |
|
2
Not including renewal options |
|
3
Rent represents straight line net rent |
|
4
Gross Book Value represents total commitment |
|
Note:
Size, Rent and Gross Book Value assume completion of approved
construction |
Critical
Accounting Policies
The
consolidated financial statements are prepared in conformity with
U.S. GAAP, which requires the use of estimates, judgments and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported
amounts of revenues and expenses in the periods presented. We
believe that the accounting estimates employed are appropriate and
resulting balances are reasonable; however, due to inherent
uncertainties in making estimates, actual results may differ from
the original estimates, requiring adjustments to these balances in
future periods. The critical accounting estimates that affect the
condensed consolidated financial statements and the judgments and
assumptions used are consistent with those described under Part II,
Item 7 of the 2020 10-K.
Results
of Operations
Three
Months Ended March 31, 2021 and 2020
Revenue
during the three months ended March 31, 2021 and 2020 was
$1,820,927 and $787,388 respectively. Revenue during the three
months ended March 31, 2021 consisted of revenue from lease income
from direct financing lease of $228,750, rental income of
$1,591,931 and miscellaneous income of $246. The increase in total
revenue was primarily related to a $1,088,729 increase in rental
income from newly acquired properties netted with a decrease in
other income of $55,190. Expenses for the three months ended March
31, 2021 increased by $177,498 as compared to total expenses for
the three months ended March 31, 2020 primarily due to an increase
in general and administrative expenses of $14,194 and an increase
in depreciation expense of $169,401. Net income attributable to
common shares during the three months ended March 31, 2021 and 2020
was approximately $944,918 and $182,029, respectively. Net income
attributable to common shares increased by $762,889 primarily due
to the increase in rental income which was offset by an increase in
depreciation expense.
For
the three months ended March 31, 2021 and 2020, we paid a cash
dividend to our holders of Series A Preferred Stock of $163,210 and
$70,058, respectively.
Liquidity
and Capital Resources
Our
cash and cash equivalents totaled approximately $37,071,322 as of
March 31, 2021, an increase of $31,469,496 from December 31, 2020.
During the three months ended March 31, 2021, the primary increase
of cash was due to financing activities such as the rights offering
that closed on February 5, 2021 through which, we raised
$36,598,055, ($36,659,941 netted with offering expenses of
$61,886), netted with a decrease of cash due to the acquisition of
land and construction in progress payments.
With
the cash available as of May, 2021, we believe these resources will
be sufficient to fund our operations and commitments. Our cash
outlays, other than acquisitions, property improvements, dividend
payments and interest expense, are for general and administrative
(“G&A”) expenses, which consist principally of legal and other
professional fees, consultant fees, NYSE American listing fees,
insurance, shareholder service company fees and auditing
costs.
To
meet our working capital and longer-term capital needs, we intend
to rely on cash provided by our operating activities, proceeds
received from the issuance of equity securities and proceeds
received from borrowings, which are typically secured by liens on
assets. Based on our leases in place and rental income as of March
31, 2021, we anticipate generating $11,257,063 in cash rent over
the next twelve months. At March 31, 2021, we owed debt in the
principal amount of $24,344,619, of which $644,365 is due in the
next twelve months. We anticipate that our cash from operations
will be sufficient to support our operations; however additional
acquisition of real estate may require us to seek to raise
additional financing. There can be no assurance that financing will
be available when needed on favorable terms.
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. Core FFO is a non-GAAP
financial measure. Core FFO should not be construed as a substitute
for net income (loss) (as determined in accordance with GAAP) for
the purpose of analyzing our operating performance or financial
position, as Core FFO is not defined by GAAP. The 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. 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 our asset
portfolio and inappropriately affect the comparability of the
Trust’s period-over-period performance. These items include
non-recurring expenses, such as 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. We believe that Core FFO is a useful supplemental
measure for the investing community to employ, including when
comparing us to other REITs that disclose similarly Core FFO
figures, and when analyzing changes in our performance over time.
Readers are cautioned that other REITs may use different
adjustments to their GAAP financial measures than we use, and that
as a result, our 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.
A
reconciliation of our Core FFO to net income for the three months
ended March 31, 2021 and 2020 is included in the table below (in
thousands):
CORE
FUNDS FROM OPERATIONS (FFO)
(Unaudited)
|
|
Three
Months Ended March 31, |
|
|
|
2021 |
|
|
2020 |
|
Revenue |
|
$ |
1,820,927 |
|
|
$ |
787,388 |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
1,108,128 |
|
|
$ |
252,087 |
|
Stock-Based
Compensation |
|
|
66,158 |
|
|
|
75,159 |
|
Interest Expense -
Amortization of Debt Costs |
|
|
8,527 |
|
|
|
8,527 |
|
Amortization of
Intangible Asset |
|
|
59,285 |
|
|
|
59,285 |
|
Depreciation on Land
Improvements |
|
|
196,051 |
|
|
|
26,650 |
|
Core FFO Available to
Preferred and Common Stock |
|
|
1,438,149 |
|
|
|
421,708 |
|
|
|
|
|
|
|
|
|
|
Preferred Stock
Dividends |
|
|
(163,210 |
) |
|
|
(70,058 |
) |
|
|
|
|
|
|
|
|
|
Core FFO
Available to Common Shares |
|
$ |
1,274,939 |
|
|
$ |
351,650 |
|
|
|
|
|
|
|
|
|
|
Weighted Average
Shares Outstanding (basic) |
|
|
2,755,502 |
|
|
|
1,899,313 |
|
|
|
|
|
|
|
|
|
|
Core FFO per Common
Share |
|
|
0.46 |
|
|
|
0.19 |
|
|
|
|
|
|
|
|
|
|
Growth
Rates: |
|
|
|
|
|
|
|
|
Revenue |
|
|
131 |
% |
|
|
|
|
Net Income |
|
|
340 |
% |
|
|
|
|
Core FFO Available to
Common Shareholders |
|
|
263 |
% |
|
|
|
|
Core
FFO per Common Share |
|
|
142 |
% |
|
|
|
|
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
As a
smaller reporting company as defined by Rule 12b-2 of the Exchange
Act, we are 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 Rules 13a-15(e) and 15d-15(e)
under 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. Our disclosure controls
and procedures are also designed to ensure that such information is
accumulated and communicated to management to allow timely
decisions regarding required disclosure. 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, 2021 were effective.
Changes
in Internal Control over Financial Reporting:
During
the fiscal quarter ended March 31, 2021, there were no changes in
our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II. OTHER
INFORMATION
Item 1. Legal
Proceedings
We
are, from time to time, the subject of claims and suits arising out
of matters related to our business. In general, litigation claims
can be expensive, and time consuming to bring or defend against and
could result in settlements or damages that could significantly
affect financial results. It is not possible to predict the final
resolution of the current litigation to which we are party to, and
the impact of certain of these matters on our business, results of
operations, and financial condition could be material. Regardless
of the outcome, litigation has adversely impacted our business
because of defense costs, diversion of management resources and
other factors.
Item
1A. Risk Factors.
The
Trust’s results of operations and financial condition are subject
to numerous risks and uncertainties as described in the 2020 10-K,
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. The following information
updates, and should be read in conjunction with, the information
disclosed in Part I, Item 1A, “Risk Factors,” contained in the 2020
10-K. There have been no material changes from the risk factors
disclosed in the 2020 10-K.
During
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.
None.
Item 6. Exhibits.
Exhibit
Number
|
|
Exhibit
Title |
|
|
|
Exhibit
10.29 |
|
Lease
Agreement with The Grail Project LLC, incorporated herein by
reference to Exhibit 10.1 to the Current Report on Form 8-K (File
No. 001-36312) filed with the Securities and Exchange Commission on
January 4, 2021. |
|
|
|
Exhibit
10.30 |
|
Lease
Agreement with DOM F LLC, incorporated herein by reference to
Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-36312)
filed with the Securities and Exchange Commission on January 14,
2021. |
|
|
|
Exhibit
10.31 |
|
Lease
Agreement with Fiore Management, LLC, incorporated herein by
reference to Exhibit 10.1 to the Current Report on Form 8-K (File
No. 001-36312) filed with the Securities and Exchange Commission on
February 4, 2021. |
|
|
|
Exhibit
10.32 |
|
Lease
Amendment related to The Grail Project, LLC, incorporated herein by
reference to Exhibit 10.1 to the Current Report on Form 8-K (File
No. 001-36312) filed with the Securities and Exchange Commission on
February 23, 2021. |
|
|
|
Exhibit
10.33 |
|
Lease
Agreement with The Gas Station, LLC, incorporated herein by
reference to Exhibit 10.1 to the Current Report on Form 8-K (File
No. 001-36312) filed with the Securities and Exchange Commission on
March 12, 2021. |
|
|
|
Exhibit
31.1 |
|
Section
302 Certification for David H. Lesser |
|
|
|
Exhibit
32.1 |
|
Section
906 Certification for David H. Lesser |
|
|
|
101.INS |
|
XBRL
Instance Document |
101.SCH |
|
XBRL
Taxonomy Extension Schema Document |
101.CAL |
|
XBRL
Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
XBRL
Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
XBRL
Taxonomy Extension Label Linkbase Document |
101.PRE |
|
XBRL
Taxonomy Extension Presentation Linkbase Document |
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report on Form 10-Q for the quarter
ended March 31, 2021 to be signed on its behalf by the undersigned
thereunto duly authorized.
POWER
REIT |
|
|
|
/s/
David H. Lesser |
|
David
H. Lesser |
|
Chairman
of the Board & |
|
Chief
Executive Officer, Secretary and Treasurer |
|
Date:
May 7, 2021 |
|
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