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 twenty-two wholly-owned, special purpose subsidiaries that have
been formed in order to hold real estate assets, obtain financing and generate lease revenue. As of June 30, 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
111 acres of land with approximately 533,000 sf of existing or under construction greenhouses leased to sixteen separate regulated cannabis
operators. Power REIT is actively seeking to grow its portfolio of real estate related to CEA for food and cannabis production.
During
the six months ended June 30, 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. The offering 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 six months ended June 30, 2021, the Trust paid quarterly dividends of approximately $326,000 ($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:
SCHEDULE OF INCOME PER COMMON SHARE
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
1,539,695
|
|
|
$
|
479,753
|
|
|
$
|
2,647,823
|
|
|
$
|
731,840
|
|
|
Preferred Stock Dividends
|
|
|
(163,202
|
)
|
|
|
(70,058
|
)
|
|
|
(326,412
|
)
|
|
|
(140,116
|
)
|
|
Numerator for basic and diluted EPS - income available to common Shareholders
|
|
$
|
1,376,493
|
|
|
$
|
409,695
|
|
|
$
|
2,321,411
|
|
|
$
|
591,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic EPS - Weighted average shares
|
|
|
3,312,001
|
|
|
|
1,912,939
|
|
|
|
3,033,751
|
|
|
|
1,906,126
|
|
|
Dilutive effect of options
|
|
|
86,313
|
|
|
|
63,111
|
|
|
|
85,228
|
|
|
|
49,442
|
|
|
Denominator for diluted EPS - Adjusted weighted average shares
|
|
|
3,398,314
|
|
|
|
1,976,050
|
|
|
|
3,118,979
|
|
|
|
1,955,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share
|
|
$
|
0.42
|
|
|
$
|
0.21
|
|
|
$
|
0.77
|
|
|
$
|
0.31
|
|
|
Diluted income per common share
|
|
$
|
0.41
|
|
|
$
|
0.21
|
|
|
$
|
0.74
|
|
|
$
|
0.30
|
|
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 allocate the purchase price on a relative fair value basis. For the six months ended June 30, 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 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 up to 55 years for auxiliary
buildings. The Trust recorded an increase in depreciation expense for the six months ended June 30, 2021 related to depreciation on properties
that it acquired and the placement into service of tenant improvements at our properties. Depreciation expense for the six months ended
June 30, 2021 and 2020 is approximately $343,000 and $56,000 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.
|
|
○
|
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.
|
|
|
|
|
|
|
○
|
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.
|
|
|
|
|
|
|
○
|
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 June 30, 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 June 30, 2021, the total construction in progress that was funded by Power REIT is approximately $1,024,000.
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 June 30, 2021, the total construction in progress
that was funded by Power REIT is approximately $534,000.
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
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:
SCHEDULE OF FAIR VALUE OF 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 June 30, 2021, the total construction in
progress that was funded by Power REIT is approximately $315,000.
On
April 20, 2021, Power REIT, through a newly formed wholly owned subsidiary, PW CO CanRE Cloud Nine, LLC, (“PW Cloud Nine”),
completed the acquisition of two properties totaling approximately 4.0 acres of vacant land (“Cloud Nine Properties”) approved
for medical cannabis cultivation in southern Colorado for $300,000 plus acquisition costs. As part of the transaction, the Trust agreed
to fund the immediate construction of an approximately 38,440 square foot greenhouse and processing facility for approximately $2.65
million. Accordingly, PW Cloud Nine’s total capital commitment is approximately $2.95 million.
As of June 30, 2021, the total construction in progress that was funded by Power REIT is approximately $565,000.
On
May 21, 2021, Power REIT, through a newly formed wholly owned subsidiary, PW CO CanRE Walsenburg, LLC, (“PW Walsenburg”),
completed the acquisition of a 35-acre
property with multiple existing greenhouses plus processing/auxiliary facilities approved for medical cannabis cultivation in Huerfano
County, Colorado (“Walsenburg Property”) for $2.3
million plus acquisition costs. As part of the
transaction, the Trust will fund approximately $1.6
million to upgrade the buildings and construct
additional greenhouse space resulting in 102,800
square feet of greenhouse and related space.
Accordingly, PW Walsenburg’s total capital commitment is approximately $3.9
million. As
of June 30, 2021, the total construction in progress that was funded by Power REIT is approximately $649,000.
POWER
REIT AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements
The
following table summarized the allocation of the purchase consideration for the Walsenburg Property based on the relative fair values
of the assets acquired:
SCHEDULE OF FAIR VALUE OF ASSETS ACQUIRED
|
Land
|
|
$
|
945,000
|
|
|
Construction in Progress
|
|
|
1,355,000
|
|
|
Acquisition Costs Capitalized
|
|
|
47,636
|
|
|
Total Assets Acquired
|
|
$
|
2,347,636
|
|
On
June 11, 2021, Power REIT, through a newly formed wholly owned subsidiary, PW CanRE OK Vinita, LLC, (“PW Vinita”), completed
the acquisition of a 9.35-acre property with approximately 40,000 square feet of greenhouse space, 3,000 square feet of office space
and 100,000 square feet of fully fenced outdoor growing space including hoop houses (“Vinita Property”) approved for medical
cannabis cultivation in Craig County, Oklahoma for $2.1 million plus acquisition costs. As part of the transaction, the Trust agreed
to fund $550,000 to upgrade the facilities. Accordingly, PW Vinita’s total capital commitment
is approximately $2.65 million. As of June 30, 2021, the total construction in progress that was funded by Power REIT is approximately
$2,400.
The
following table summarized the allocation of the purchase consideration for the Vinita Property based on the relative fair values of
the assets acquired:
SCHEDULE OF FAIR VALUE OF ASSETS ACQUIRED
|
Land
|
|
$
|
50,000
|
|
|
Construction in Progress
|
|
|
2,050,000
|
|
|
Acquisition Costs Capitalized
|
|
|
44,328
|
|
|
Total Assets Acquired
|
|
$
|
2,144,328
|
|
On
June 18, 2021, Power REIT, through a newly formed wholly owned subsidiary, PW CO CanRE JKL, LLC, (“PW JKL”), completed the
acquisition of a property totaling 10 acres of vacant land (“JKL Property”) approved for medical cannabis cultivation in
southern Colorado for $400,000 plus acquisition costs. As part of the transaction, the Trust agreed to fund the immediate construction
of an approximately 12,000 square foot greenhouse and 12,880 square feet of support buildings for approximately $2.5 million. Accordingly,
PW JKL’s total capital commitment is approximately $2.9 million. As of June 30, 2021, the total construction in progress
that was funded by Power REIT is approximately $518,000.
The
acquisitions described above are accounted for as asset acquisitions under ASC 805-50, Business Combinations – Related
Issues. Power REIT has established a depreciable life for the property improvements of 20 years
for greenhouses and up to 55 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 eight acquisitions and one expansion is approximately
$4.6 million. Each tenant is responsible for paying all expenses related to the properties including maintenance, insurance and taxes.
The term of the leases are 20 years with two options to extend for additional five-year periods and have financial guarantees from affiliates
of the tenants, except for the Canndescent lease which was already in place and assigned to the Trust.
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 June 30, 2021
and December 31, 2020 is approximately $64,000 and $70,000 respectively.
POWER
REIT AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements
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 June 30, 2021 and December
31, 2020 is approximately $536,000 (net of approximately $5,500 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 June 30, 2021,
and December 31, 2020, the balance of the 2015 PWRS Loan was approximately $8,051,000 (net of unamortized debt costs of approximately
$292,000) 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 June 30, 2021 and December 31, 2020 is $14,902,000 (net of approximately $298,000 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 June 30, 2021 is as follows for the subsequent
years ending December 31:
SCHEDULE OF LONG-TERM DEBT
|
|
|
Total Debt
|
|
|
|
|
|
|
|
2021 (6 months remaining)
|
|
|
373,520
|
|
|
2022
|
|
|
675,374
|
|
|
2023
|
|
|
1,168,408
|
|
|
2024
|
|
|
715,777
|
|
|
2025
|
|
|
755,634
|
|
|
Thereafter
|
|
|
20,459,470
|
|
|
Long term debt
|
|
$
|
24,148,183
|
|
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 twenty-five leases are recognized on a straight-line basis over the terms of the respective leases.
Total revenue from its leases recognized for the six months ended June 30, 2021 and 2020 are approximately $4.1 million
and 1.7 million,
respectively.
POWER
REIT AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements
The
aggregate annual cash to be received by the Trust on all leases related to its portfolio as of June 30, 2021 is as follows for the subsequent
years ending December 31:
SCHEDULE OF MINIMUM FUTURE RENTALS
|
|
|
|
June
30, 2021
|
|
|
2021 (6 months remaining)
|
|
$
|
6,010,025
|
|
|
2022
|
|
$
|
16,350,458
|
|
|
2023
|
|
$
|
15,983,082
|
|
|
2024
|
|
$
|
12,428,375
|
|
|
2025
|
|
$
|
8,103,779
|
|
|
Thereafter
|
|
$
|
144,098,465
|
|
|
Total
|
|
$
|
202,974,184
|
|
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 six months ended June 30, 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 $158,145
were incurred in connection with the offering
and recorded as contra-equity netting against the proceeds of the 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. David Lesser is the Managing Member of
PW RO Holdings 2 LLC which participated in the rights offering and acquired 155,000
shares. David Lesser 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.
Summary
of Stock Based Compensation Activity – Options
The
summary of stock based compensation activity for the six months ended June 30, 2021, with respect to the Trust’s stock options,
is as follows:
Summary
of Activity - Options
SUMMARY OF STOCK BASED COMPENSATION ACTIVITY
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Value
|
|
|
Balance as of December 31, 2020
|
|
|
106,000
|
|
|
|
7.96
|
|
|
|
-
|
|
|
Plan Awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Options Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance as of June 30, 2021
|
|
|
106,000
|
|
|
|
7.96
|
|
|
|
3,414,260
|
|
|
Options vested at June 30, 2021
|
|
|
106,000
|
|
|
|
7.96
|
|
|
|
3,414,260
|
|
The
weighted average remaining term of the options is approximately 1.12 years.
POWER
REIT AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements
Summary
of Plan Activity – Restricted Stock
The
summary of Plan activity for the six months ended June 30, 2021, with respect to the Trust’s restricted stock, was as follows:
Summary
of Activity - Restricted Stock
SUMMARY OF RESTRICTED STOCK PLAN ACTIVITY
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
|
Shares of
|
|
|
Average
|
|
|
|
|
Restricted
|
|
|
Grant Date
|
|
|
|
|
Stock
|
|
|
Fair Value
|
|
|
Balance as of December 31, 2020
|
|
|
35,066
|
|
|
|
8.76
|
|
|
Plan Awards
|
|
|
22,900
|
|
|
|
37.18
|
|
|
Restricted Stock Vested
|
|
|
(15,356
|
)
|
|
|
9.96
|
|
|
Balance as of June 30, 2021
|
|
|
42,610
|
|
|
|
23.60
|
|
Stock-based
Compensation
During
the six months ended June 30, 2021, the Trust recorded approximately $153,000
of non-cash expense related to restricted
stock and options granted compared to approximately $123,000
for six months ended June 30, 2020. As of June
30, 2021, there was approximately $1,006,000
of total unrecognized share-based compensation
expense, which will be recognized through the first quarter of 2024. 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 June 30, 2021, the aggregate number of shares of Common
Stock that may be issued pursuant to outstanding awards is currently 213,017.
Preferred
Stock Dividends
During
the six months ended June 30, 2021, the Trust paid a total of approximately $326,000 of dividends to holders of Power REIT’s Series
A Preferred Stock.
7.
RELATED PARTY TRANSACTIONS
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 $36,000 was paid pursuant to this arrangement during the six months ended June 30, 2021 compared to $10,500 paid
during the first six months of 2020.
POWER
REIT AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements
Power REIT has entered into
two lease transactions with tenant/operators that are capitalized by Millennium Investment and Acquisition Company Inc.
(ticker: MILC) (“MILC’). David H Lesser, Power REIT’s Chairman and CEO, is also Chairman and CEO of MILC. On May
21, 2021, MILC agreed to provide a loan of up to $750,000 to the tenant of our Walsenburg, Colorado property with the intent that MILC will become a 77.5%
owner of the tenant once MILC receives approval from the Colorado cannabis regulators. On June 11,2021, MILC agreed to invest
$750,000
in the form of a preferred equity ownership position that receives a full return of capital and a preferred return and then
owns a 77.5%
interest in the tenant/operator of Power REIT’s Vinita, OK property. For the six months ended June 30, 2021, the Trust recognized
rental income of approximately $106,000
from these tenants.
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 reimbursement to HBP,
and the relationship with MILC 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
July 22, 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 September 15, 2021 to shareholders of record on August 15, 2021.