UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2021

☐ 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.

Yes ☒ No ☐

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

Yes ☒ No ☐

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	☒	Smaller reporting company	☒
Emerging growth company	☐

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

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

Yes ☐ No ☒

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

3,322,433 common shares, $0.001 par value, outstanding at November 15, 2021.

TABLE OF CONTENTS

		Page No.

PART I – FINANCIAL INFORMATION

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

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3 – Quantitative and Qualitative Disclosures About Market Risk		25

Item 4 – Controls and Procedures		25

PART II – OTHER INFORMATION

	Item 1 – Legal Proceedings	26

	Item 1A – Risk Factors	26

	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	27

	Item 3 – Defaults Upon Senior Securities	27

	Item 4 – Mine Safety Disclosures	27

	Item 5 – Other Information	27

	Item 6 – Exhibits	28

SIGNATURE		29

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

POWER REIT AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2021		December 31, 2020
ASSETS
Land	$	10,915,460	$	8,333,040
Greenhouse cultivation and processing facilities, net of accumulated depreciation		42,958,885		10,305,979
Greenhouse cultivation and processing facilities - construction in progress		9,115,591		2,087,086
Net investment in direct financing lease - railroad		9,150,000		9,150,000
Total real estate assets		72,139,936		29,876,105

Cash and cash equivalents		9,277,605		5,601,826
Prepaid expenses		141,840		89,345
Intangible assets, net of accumulated amortization		3,174,457		3,352,313
Deferred rent receivable		2,684,615		1,602,655
Other assets		51,975		16,975
TOTAL ASSETS	$	87,470,428	$	40,539,219

LIABILITIES AND EQUITY
Accounts payable	$	75,578	$	83,562
Accounts payable – related party		122,384		-
Accrued interest		2,387		80,579
Deferred rent liability		678,224		123,966
Tenant security deposits		2,311,075		1,137,481
Prepaid rent		78,199		105,331
Current portion of long-term debt, net of unamortized discount		632,080		605,272
Long-term debt, net of unamortized discount		22,615,812		23,192,871
TOTAL LIABILITIES		26,515,739		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 September 30, 2021 and December 31, 2020)		8,489,952		3,492,149

Equity:
Common Shares, $0.001 par value (98,325,000 shares authorized; 3,322,433 shares issued and outstanding at September 30, 2021 and 1,916,139 at December 31, 2020)		3,322		1,916
Additional paid-in capital		48,838,164		12,077,054
Retained earnings (accumulated deficit)		3,623,251		(360,962	)
*Total Equity*		52,464,737		11,718,008

TOTAL LIABILITIES AND EQUITY	$	87,470,428	$	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 September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
REVENUE
Lease income from direct financing lease – railroad	$	228,750		$	228,750		$	686,250		$	686,250
Rental income		1,751,140			882,625			5,271,826			2,121,268
Rental income – related parties		564,189			-			670,532			-
Other income		3,269			4,211			7,515			70,578
TOTAL REVENUE		2,547,348			1,115,586			6,636,123			2,878,096

EXPENSES
Amortization of intangible assets		59,285			59,285			177,856			177,854
General and administrative		216,742			145,868			612,250			399,368
Property taxes		6,380			5,960			18,989			20,617
Depreciation expense		226,915			39,767			569,481			96,029
Interest expense		212,015			288,642			783,713			876,324
TOTAL EXPENSES		721,337			539,522			2,162,289			1,570,192

NET INCOME		1,826,011			576,064			4,473,834			1,307,904

Preferred Stock Dividends		(163,209	)		(70,058	)		(489,621	)		(210,174	)

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	1,662,802		$	506,006		$	3,984,213		$	1,097,730

Income Per Common Share:
Basic	$	0.50		$	0.26		$	1.27		$	0.57
Diluted		0.49			0.25			1.24			0.56

Weighted Average Number of Shares Outstanding:
Basic		3,322,433			1,915,200			3,129,978			1,909,151
Diluted		3,408,279			1,984,727			3,215,464			1,967,481

Cash dividend per Series A Preferred Share	$	0.48		$	0.48		$	1.45		$	1.45

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 Nine Months Ended September 30, 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
Net Income		-		-		-			1,539,695			1,539,695
Cash Dividends on Preferred Stock		-		-		-			(163,202	)		(163,202	)
Stock Issuance Costs		-		-		(96,259	)		-			(96,259	)
Stock-Based Compensation		22,900		23		86,792			-			86,815
Balance as of June 30, 2021		3,322,433	$	3,322	$	48,730,417		$	1,960,449		$	50,694,188
Net Income		-		-		-			1,826,011			1,826,011
Cash Dividends on Preferred Stock		-		-		-			(163,209	)		(163,209	)
Stock Issuance Costs		-		-		(6,930	)		-			(6,930	)
Stock-Based Compensation		-		-		114,677			-			114,677
Balance as of September 30, 2021		3,322,433		3,322	$	48,838,164		$	3,623,251		$	52,464,737

					Additional		Retained Earnings			Total
	Common Shares				Paid-in		(Accumulated			Shareholders’
	Shares		Amount		Capital		Deficit)			Equity

Balance at December 31, 2019		1,872,939	$	1,873	$	11,821,486	$	(2,252,606	)	$	9,570,753
Net Income		-		-		-		252,087			252,087
Cash Dividends on Preferred Stock		-		-		-		(70,058	)		(70,058	)
Stock-Based Compensation		40,000		40		75,118		-			75,158
Balance at March 31, 2020		1,912,939	$	1,913	$	11,896,604	$	(2,070,577	)	$	9,827,940
Net Income		-		-		-		479,753			479,753
Cash Dividends on Preferred Stock		-		-		-		(70,058	)		(70,058	)
Stock-Based Compensation		-		-		48,133		-			48,133
Balance as of June 30, 2020		1,912,939	$	1,913	$	11,944,737	$	(1,660,882	)	$	10,285,768
Net Income		-		-		-		576,064			576,064
Cash dividends on Preferred Stock		-		-		-		(70,058	)		(70,058	)
Stock-based compensation		3,200		3		66,158		-			66,161
Balance at September 30, 2020		1,916,139		1,916		12,010,895		(1,154,876	)		10,857,935

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

POWER REIT AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
	2021			2020
Operating activities
Net income	$	4,473,834		$	1,307,904

Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets		177,856			177,854
Amortization of debt costs		25,582			25,582
Stock-based compensation		267,650			189,452
Depreciation		569,481			96,029

Changes in operating assets and liabilities
Other assets		(35,000	)		(276	)
Deferred rent receivable		(1,081,960	)		(586,707	)
Deferred rent liability		554,258			37,227
Prepaid expenses		(52,495	)		(55,138	)
Accounts payable		(7,984	)		15,401
Accounts payable – related party		122,384			-
Tenant security deposits		1,173,594			779,494
Accrued interest		(78,192	)		(4,623	)
Prepaid rent		(27,132	)		-
Net cash provided by operating activities		6,081,876			1,982,199

Investing activities
Cash paid for land, greenhouse cultivation and processing facilities		(30,807,004	)		(2,746,019	)
Cash paid for greenhouse cultivation and processing facilities - construction in progress		(7,028,505	)		(6,686,138	)
Net cash used in investing activities		(37,835,509	)		(9,432,157	)

Financing Activities
Net proceeds from issuance of common stock		36,494,866			-
Principal payment on long-term debt		(575,833	)		(542,980	)
Cash dividends paid on preferred stock		(489,621	)		(210,174	)
Net cash provided by (used in) financing activities		35,429,412			(753,154	)

Net increase (decrease) in cash and cash equivalents		3,675,779			(8,203,112	)

Cash and cash equivalents, beginning of period	$	5,601,826		$	15,842,504

Cash and cash equivalents, end of period	$	9,277,605		$	7,639,392

Supplemental disclosure of cash flow information:
Interest paid	$	836,323		$	846,119
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 twenty-three wholly-owned, special purpose subsidiaries that have been formed in order to hold real estate assets, obtain financing and generate lease revenue. As of September 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 172 acres of land with approximately 1,090,000 sf of existing or under construction greenhouses leased to seventeen 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 nine months ended September 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 nine months ended September 30, 2021, the Trust paid quarterly dividends of approximately $490,000 ($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, 2020, the last tax return completed to date, the Trust has a net operating loss of $22.7 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 similarly 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						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020

Numerator:
Net Income	$	1,826,011		$	576,064		$	4,473,834		$	1,307,904
Preferred Stock Dividends		(163,209	)		(70,058	)		(489,621	)		(210,174	)
Numerator for basic and diluted EPS - income available to common Shareholders	$	1,662,802		$	506,006		$	3,984,213		$	1,097,730

Denominator:
Denominator for basic EPS - Weighted average shares		3,322,433			1,915,200			3,129,978			1,909,151
Dilutive effect of options		85,846			69,527			85,486			58,330
Denominator for diluted EPS - Adjusted weighted average shares		3,408,279			1,984,727			3,215,464			1,967,481

Basic income per common share	$	0.50		$	0.26		$	1.27		$	0.57
Diluted income per common share	$	0.49		$	0.25		$	1.24		$	0.56

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 nine months ended September 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/comparable if acquired with existing property improvements.
	●	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 AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

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 nine months ended September 30, 2021 compared to 2020 related to depreciation on properties that it acquired, and the placement into service of tenant improvements at our properties. Depreciation expense for the nine months ended September 30, 2021 and 2020 is approximately $569,000 and $96,000 respectively.

Covid – 19 Impact

We are monitoring Covid-19 closely. Our operations have been affected by the COVID-19 outbreak due to manufacturing and supply chain disruptions for materials which also may be experiencing delays related to transportation of such materials which is impacting construction timeframes. The ultimate severity of the outbreak and its impact on the economic environment is uncertain at this time.

Impact of New Accounting Standards

The Company has evaluated all recent accounting pronouncements and believes either they are not applicable or that none of them will have a significant effect on the Company’s financial statements.

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.

POWER REIT AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

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 b

SEC Form 10-Q filed by Power REIT