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 31, 2022.
Power
REIT (the “Registrant” or the “Trust”, and together with its consolidated subsidiaries, “we”, “us”,
or “Power REIT”, unless the context requires otherwise) is a Maryland-domiciled, internally-managed real estate investment
trust (a “REIT”) that owns a portfolio of real estate assets related to transportation, energy infrastructure and Controlled
Environment Agriculture (“CEA”) in the United States.
Power
REIT 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-five direct and indirect 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, 2022, 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
263 acres of land with approximately 2,211,000 square feet of existing or under construction greenhouses.
On
March 31, 2022, Power REIT acquired a 1,121,513 square foot CEA greenhouse in O’Neill Nebraska which is the Trust’s largest
greenhouse to date and is the first acquisition with the focus on the cultivation of food crops.
During
the three months ended March 31, 2022, the Trust paid quarterly dividends of approximately $163,000 ($0.484375 per share per quarter)
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.
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 COMPUTATION OF BASIC AND DILUTED INCOME PER COMMON SHARE
| | |
2022 | | |
2021 | |
| | |
Three
Months Ended | |
| | |
March
31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Numerator: | |
| | | |
| | |
| Net
Income | |
$ | 997,880 | | |
$ | 1,108,128 | |
| Preferred
Stock Dividends | |
| (163,207 | ) | |
| (163,210 | ) |
| Numerator
for basic and diluted EPS - income available to common Shareholders | |
$ | 834,673 | | |
$ | 944,918 | |
| | |
| | | |
| | |
| Denominator: | |
| | | |
| | |
| Denominator for basic
EPS - Weighted average shares | |
| 3,367,531 | | |
| 2,755,502 | |
| Dilutive
effect of options | |
| - | | |
| 83,972 | |
| Denominator
for diluted EPS - Adjusted weighted average shares | |
| 3,367,531 | | |
| 2,839,474 | |
| | |
| | | |
| | |
| Basic income per
common share | |
$ | 0.25 | | |
$ | 0.34 | |
| Diluted income per
common share | |
$ | 0.25 | | |
$ | 0.33 | |
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 three months ended March 31, 2022,
and 2021, all acquisitions were considered 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, its 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 if acquired as raw land. When property is acquired with improvements, the land price is established
based on market comparables and market research to establish a value with the balance allocated to improvements for the land. |
| |
|
|
| |
● |
Improvements
– When a property is acquired with improvements, the land price is established based on market comparables and market research
to establish a value with the balance allocated to improvements for the land. The Trust also evaluate the improvements in terms of
replacement cost and condition to confirm that the valuation assigned to improvements is reasonable. Depreciation is calculated on
a straight-line method over the useful life of the improvements. |
| |
● |
Lease
Intangibles – The Trust recognizes lease intangibles when there’s an existing
lease assumed with the property acquisitions. In determining the fair value of in-place leases
(the avoided cost associated with existing in-place leases) management considers current
market conditions and costs to execute similar leases in arriving at an estimate of the carrying
costs during the expected lease-up period from vacant to existing occupancy. In estimating
carrying costs, management includes reimbursable (based on market lease terms) real estate
taxes, insurance, other operating expenses, as well as estimates of lost market rental revenue
during the expected lease-up periods. The values assigned to in-place leases are amortized
over the remaining term of the lease.
The
fair value of above-or-below market leases is estimated based on the present value (using an interest rate which reflected the risks
associated with the leases acquired) of the difference between contractual amounts to be received pursuant to the leases and management’s
estimate of market lease rates measured over a period equal to the estimated remaining term of the lease. An above market lease is
classified as an intangible asset and a below market lease is classified as an intangible liability. The capitalized above-market
or below-market lease intangibles are amortized as a reduction of, or an addition to, rental income over the estimated remaining
term of the respective leases.
Intangible
assets related to leasing costs consist of leasing commissions and legal fees. Leasing commissions are estimated by multiplying the
remaining contract rent associated with each lease by a market leasing commission. Legal fees represent legal costs associated with
writing, reviewing, and sometimes negotiating various lease terms. Leasing costs are amortized over the remaining useful life of
the respective leases. |
| |
|
|
| |
● |
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. The value of CIP is based on actual costs incurred. |
Depreciation
Depreciation
is computed using the straight-line method over the estimated useful lives of 20 years for greenhouses and 39 years for auxiliary buildings,
except for Candescent, which was determined the buildings have a useful life of 37 years. The Trust recorded an increase in depreciation
expense for the three months ended March 31, 2022 related to depreciation on properties that it acquired and the placement into service
of tenant improvements at our properties. For each of the three months ended March 31, 2022, and 2021, approximately $288,500 and $196,100
depreciation expense was recorded, 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.
Revenue
Recognition
The
Railroad Lease is treated as a direct financing lease. As such, income to P&WV under the Railroad Lease is recognized when received.
Lease
revenue from solar land and CEA properties are accounted for as operating leases. Any such leases with rent escalation provisions are
recorded on a straight-line basis when the amount of escalation in lease payments is known at the time Power REIT enters into the lease
agreement, or known at the time Power REIT assumes an existing lease agreement as part of an acquisition (e.g., an annual fixed percentage
escalation) over the initial lease term, subject to a collectability assessment, with the difference between the contractual rent receipts
and the straight-line amounts recorded as “deferred rent receivable” or “deferred rent liability”. Collectability
is assessed at quarter-end for each tenant receivable using various criteria including past collection issues, the current economic and
business environment affecting the tenant and guarantees. If collectability of the contractual rent stream is not deemed probable, revenue
will only be recognized upon receipt of cash from the tenant. During the three months ended March 31, 2022 and 2021, the Trust wrote
off approximately $218,000
and $0,
respectively in straight-line rent receivable against rental income based on its current assessment of collecting all remaining
contractual rent on two CEA leases. Expenses for which tenants are contractually obligated to pay, such as maintenance, property taxes
and insurance expenses are not reflected in the Trust’s consolidated financial statements.
Lease
revenue from land that is subject to an operating lease without rent escalation provisions is recorded on a straight-line basis.
Intangibles
A
portion of the acquisition price of the assets acquired by PW Tulare Solar, LLC (“PWTS”) have been allocated on the Trust’s
consolidated balance sheets between Land and Intangibles’ fair values at the date of acquisition. The total amount of in-place
lease intangible assets established was approximately $237,000, which will be amortized over a 24.6-year period. For each of the three
months ended March 31, 2022 and 2021, approximately $2,400 of the intangibles was amortized.
A
portion of the acquisition price of the assets acquired by PW Regulus Solar, LLC (“PWRS”) have been allocated on The Trust’s
consolidated balance sheets between Land and Intangibles’ fair values at the date of acquisition. The total amount of in-place
lease intangible assets established was approximately $4,714,000, which is amortized over a 20.7-year period. For each of the three months
ended March 31, 2022 and 2021, approximately $56,900 of the intangibles was amortized.
A
portion of the acquisition price of the assets acquired by PW CA Canndescent, LLC (“PW Canndescent”) have been allocated
on The Trust’s consolidated balance sheets between Land, Improvements and Intangibles’ fair values at the date of acquisition.
The amount of in-place lease intangible assets established was approximately $808,000, which is amortized over a 4.5-year period. For
the three months ended March 31, 2022 and 2021, approximately $44,900 and $0 of amortization expense was recognized. A below-market lease
intangible liability was recorded upon acquisition in the amount of approximately $179,000 and is amortized over a 4.5-year period. Addition
to revenue for the amortization of the liability in the amount of approximately $9,900 and $0 was recognized for the three months ended
March 31, 2022, and 2021, respectively.
Intangible
assets are evaluated whenever events or circumstances indicate the carrying value of these assets may not be recoverable. There were
no impairment charges recorded for the three months ended March 31, 2022, and 2021.
The
following table provides a summary of the Intangible Assets and Liabilities:
SCHEDULE OF INTANGIBLE ASSETS
| | |
For
the Three Months Ended March 31, 2022 | |
| | |
| | |
Accumulated | | |
Accumulated | | |
| |
| | |
| | |
Amortization
/ Addition to
Revenue | | |
Amortization
/ Addition to
Revenue | | |
Net Book
| |
| | |
Cost | | |
Through
12/31/21 | | |
1/1/22
- 3/31/22 | | |
Value | |
| Asset
Intangibles - PWTS | |
$ | 237,471 | | |
$ | 81,695 | | |
$ | 2,413 | | |
$ | 153,363 | |
| Asset
Intangibles - PWRS | |
$ | 4,713,548 | | |
$ | 1,754,151 | | |
$ | 56,872 | | |
$ | 2,902,525 | |
| Asset
Intangibles - Canndescent | |
$ | 807,976 | | |
$ | 162,593 | | |
$ | 44,887 | | |
$ | 600,496 | |
| Asset
Intangibles Total | |
$ | 5,758,995 | | |
$ | 1,998,439 | | |
$ | 104,172 | | |
$ | 3,656,384 | |
| | |
| | | |
| | | |
| | | |
| | |
| Liability
Intangible - Canndescent | |
$ | (178,651 | ) | |
$ | (35,951 | ) | |
$ | (9,925 | ) | |
$ | (132,775 | ) |
The
following table provides a summary of the current estimate of future amortization of Intangible Assets for the subsequent years ended
December 31:
SCHEDULE OF FUTURE AMORTIZATION OF INTANGIBLE ASSETS
| | |
| | |
| 2022
(9 months remaining) | |
$ | 312,518 | |
| 2023 | |
| 416,690 | |
| 2024 | |
| 416,690 | |
| 2025 | |
| 343,874 | |
| 2026 | |
| 237,141 | |
| Thereafter | |
| 1,929,471 | |
| Total | |
$ | 3,656,384 | |
The
following table provides a summary of the current estimate of future addition to revenue for Intangible Liability for the subsequent
years ended December 31:
SCHEDULE OF FUTURE ADDITION TO REVENUE FOR INTANGIBLE LIABILITIES
| | |
| | |
| 2022
(9 months remaining) | |
$ | 29,775 | |
| 2023 | |
| 39,700 | |
| 2024 | |
| 39,700 | |
| 2025 | |
| 23,600 | |
| Total | |
$ | 132,775 | |
Net
Investment in Direct Financing Lease – Railroad
P&WV’s
net investment in its leased railroad property, recognizing the lessee’s perpetual renewal options, was estimated to have a current
value of $9,150,000, assuming an implicit interest rate of 10%.
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, prepaid expenses, 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, 2022 and December 31, 2021.
3
– ACQUISITIONS
2022
Acquisitions
On
March 31, 2022, Power REIT, through a newly formed wholly owned subsidiary, PW MillPro NE LLC, (“PW MillPro”), acquired a
1,121,513
square foot greenhouse cultivation facility (the
“MillPro Facility”) on an approximately 86
acre property and a separate approximately
4.88
acre property with a 21-room employee housing
building (the “Housing Facility”) for $9,350,000
and closing costs of approximately $88,000
located in O’Neill, Nebraska. As part of the
transaction, the Trust agreed to fund improvements including the replacement of Energy Curtains for $534,430.
The
following table summarizes the preliminary allocation of the purchase consideration for the PW MillPro properties based on
the relative fair values of the assets acquired:
SCHEDULE OF FAIR VALUE OF ASSETS ACQUIRED
| | |
Greenhouse | | |
Housing
Facility | |
| Land | |
$ | 344,000 | | |
$ | 19,520 | |
| Assets
subject to depreciation: | |
| | | |
| | |
| Improvements
(Greenhouses / Processing Facilities) | |
| 8,790,790 | | |
| 283,399 | |
| | |
| | | |
| | |
| Total
Assets Acquired | |
$ | 9,134,790 | | |
$ | 302,919 | |
4–
DIRECT FINANCING LEASES AND OPERATING 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 lease terms ranging between 5 and 99 years. Payments from the
Trust’s leases are recognized on a straight-line basis over the terms of the respective leases when deemed probable of collection.
Collectability is assessed at quarter-end for each tenant receivable using various criteria including past collection issues, the current
economic and business environment affecting the tenant and guarantees. If collectability of the contractual rent stream is not deemed
probable, revenue will only be recognized upon receipt of cash from the tenant. Total revenue from its leases recognized
for the three months ended March 31, 2022 and March 31, 2021 is approximately $1,986,000 and 1,821,000, respectively.
During
the three months ended March 31, 2022 and 2021, the Trust wrote off approximately $218,000
and $0,
respectively in straight-line rent receivable against rental income based on its current assessment of collecting all remaining
contractual rent on two greenhouse property leases located in Ordway, CO.
Historically, the Trust’s revenue
has been concentrated to a relatively limited number of investments, industries and lessees. As the Trust grows, its portfolio may
remain concentrated in a limited number of investments. During the three months ended March 31, 2022, Power REIT collected
approximately 66%
of its consolidated revenue from five properties. The tenants are NorthEast Kind Assets, LLC (“Sweet Dirt”), Fiore
Management LLC (“Canndescent”), Norfolk Southern Railway, Walsenburg Cannabis LLC and Regulus Solar, LLC which represent 19%, 14%, 12%, 11%
and 10%
of consolidated revenue respectively. Comparatively, during the three months ended March 31, 2021, Power REIT collected
approximately 42%
of its consolidated revenue from three properties. The tenants were NorthEast Kind Assets, LLC (“Sweet Dirt”), Norfolk
Southern Railway and Regulus Solar, LLC which represent 18%, 13%
and 11%
of consolidated revenue respectively.
The
aggregate annual cash expected to be received by the Trust on all leases related to its portfolio as of March 31, 2022, is as
follows for the subsequent years ended December 31:
SCHEDULE OF MINIMUM FUTURE RENTALS
| | |
| | |
| 2022
(9 Months Remaining) | |
$ | 9,990,788 | |
| 2023 | |
$ | 14,829,847 | |
| 2024 | |
$ | 12,356,471 | |
| 2025 | |
$ | 9,458,281 | |
| 2026 | |
$ | 7,635,715 | |
| Thereafter | |
$ | 125,653,047 | |
| Total | |
$ | 179,924,149 | |
5
– 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, due on February
1 of each year. The balance of the Municipal
Debt as of March 31, 2022 and December 31, 2021 is approximately $58,000
and $64,000
respectively.
In
July 2013, PWSS borrowed $750,000 from a regional bank (the “PWSS Term Loan”). The PWSS Term Loan carries a fixed 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, 2022 and December 31, 2021
is approximately $514,000 (net of approximately $3,400 of capitalized debt costs which are being amortized over the life of the financing)
and $521,000 (net of approximately $4,100 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 certain 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 a 4.34% interest rate. As of March 31, 2022 and December
31, 2021, the balance of the PWRS Bonds was approximately $7,801,000 (net of unamortized debt costs of approximately $275,000) and $7,803,000
(net of unamortized debt costs of approximately $280,000), 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 certain 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 is 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 interest rate of 4.62%
and fully amortizes over the life of the financing which matures in 2054
(35 years). The balance of the loan as of March
31, 2022 and December 31, 2021 is $14,761,000
(net of approximately $291,000
of capitalized debt costs) and $14,809,000
(net of approximately $293,000
of capitalized debt costs).
On
December 21, 2021, Power REIT entered into a Debt Facility with initial availability of $20 million. The
facility is non-recourse to Power REIT and is structured without initial collateral but has springing liens to provide security
against a significant number of Power REIT CEA portfolio properties in the event of default. The Debt Facility has a 12 month draw
period and then converts to a term loan that is fully amortizing over five years.
The interest rate on the Debt Facility is 5.52%
and throughout the term of the loan, a debt service coverage ratio of equal to or greater than 2.00
to 1.00
must be maintained. Power REIT is in compliance with the debt service ratio as of March 31, 2022. Debt issuance expenses of approximately $275,000
and $44,000 have been
capitalized during the year ended December 31, 2021 and during the three months ended March 31, 2022 respectively. Amortization
of approximately $13,400 has
been recognized for the three months ended March 31, 2022 and approximately $176,000 deferred
debt issuance costs were re-classed as contra liability upon the loan draw. During the three months
March 31, 2022, $11,500,000 was
drawn on the Debt Facility.
The
approximate amount of principal payments remaining on Power REIT’s long-term debt as of March 31, 2022 is as follows:
SCHEDULE OF LONG-TERM DEBT
| | |
Total
Debt | |
| | |
| |
| 2022
(9 months remaining) | |
| 603,302 | |
| 2023 | |
| 2,893,824 | |
| 2024 | |
| 3,015,777 | |
| 2025 | |
| 3,055,634 | |
| 2026 | |
| 3,097,628 | |
| Thereafter | |
| 22,536,946 | |
| Long
term debt | |
$ | 35,203,111 | |
6
– EQUITY AND LONG-TERM COMPENSATION
Summary
of Stock Based Compensation Activity
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 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, 2022, the aggregate number of shares of Common
Stock that may be issued pursuant to outstanding awards is currently 213,317.
Summary
of Stock Based Compensation Activity – Restricted Stock
The
summary of stock-based compensation activity for the quarter ended March 31, 2022, with respect to the Trust’s restricted stock,
was as follows:
SCHEDULE OF SHARE BASED COMPENSATION RESTRICTED STOCK UNITS AWARD ACTIVITY
| Summary
of Activity - Restricted Stock | |
| | |
| |
| | |
| | |
| |
| | |
Number
of | | |
Weighted | |
| | |
Shares
of | | |
Average | |
| | |
Restricted | | |
Grant
Date | |
| | |
Stock | | |
Fair
Value | |
| Balance
as of December 31, 2021 | |
| 31,260 | | |
| 24.83 | |
| Restricted
Stock Forfeited | |
| (300 | ) | |
| 37.18 | |
| Restricted
Stock Vested | |
| (4,414 | ) | |
| 15.36 | |
| Balance
as of March 31, 2022 | |
| 26,546 | | |
| 26.26 | |
During the three months ended March 31, 2022,
300 shares of unvested restricted stock was forfeited upon one previous board member’s resignation from the board.
Stock-based
Compensation
During
the quarter ended March 31, 2022, the Trust recorded approximately $109,000 of non-cash expense related to restricted stock granted compared
to approximately $66,000 for the quarter ended March 31, 2021. As of March 31, 2022, there was approximately $656,000 of total unrecognized
share-based compensation expense, which expense will be recognized through the second 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.
Preferred
Stock Dividends
During
the quarter ended March 31, 2022, 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
A
wholly-owned subsidiary of Hudson Bay Partners, LP (“HBP”), an entity associated with our CEO and Chairman 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 has increased over time with the approval
of the independent members of the Board of Trustees. Effective February 23, 2021, the monthly amount paid to the affiliate of
HBP increased to $4,000.
A total of only $8,000
was paid pursuant to this arrangement during
the quarter ended March 31, 2022 compared to $24,000
paid during the quarter ended March 31, 2021.
During the first quarter of 2022, the Trust eliminated this recurring related party transaction and implemented payroll through Power
REIT to pay an employee a salary at the same rate as the Trust was paying to the related party entity.
Power
REIT has entered into a synergistic relationship with Millennium Sustainable Ventures Corp., formerly Millennium Investment and Acquisition
Company Inc. (“MILC’). David H Lesser, Power REIT’s Chairman and CEO, is also Chairman and CEO of MILC. MILC, through
subsidiaries, established cannabis and food crop cultivation projects and currently is the tenant in the Trust’s Colorado, Oklahoma,
Michigan and Nebraska properties. Power REIT has entered into lease transactions with the related tenants in which MILC has controlling
interests. Total rental income recognized for the three months ended March 31, 2022 from the affiliated tenants in Colorado, Oklahoma,
Michigan and Nebraska was $212,376,
$125,640,
$0
and $0
respectively. During the three months ended
March 31, 2021, the rent received from related parties was $0.
Effective
March 1, 2022, the Sweet Dirt Lease was amended (the “Sweet Dirt Lease Second Amendment”) to provide funding in the amount
of $3,508,000
to add additional items to the property improvement
budget for the construction of a Cogeneration / Absorption Chiller project to the Sweet Dirt Property. A portion of the property improvement
budget, amounting to $2,205,000,
will be supplied by IntelliGen Power Systems LLC which is owned by HBP, an affiliate of David Lesser, Power REIT’s Chairman and
CEO. As of March 31, 2022, $1,102,500 has been paid to IntelliGen Power Systems LLC for equipment supplied.
Under
the Trust’s Declaration of Trust, the Trust may enter into transactions in which trustees, officers or employees have a financial
interest, provided however, that in the case of a material financial interest, the transaction is disclosed to the Board of Trustees
or the transaction shall be fair and reasonable. After consideration of the terms and conditions of the transaction with IntelliGen Power
Systems, the lease transactions with subsidiaries of MILC, and the reimbursement to HBP described herein, the
independent trustees approved such arrangements having determined such arrangement are fair and reasonable and in the interest of the
Trust.
8
- SUBSEQUENT EVENTS
On
April 1, 2022, Power REIT (“Power REIT” or the “Trust”), through a wholly owned subsidiary of the Trust (“PropCo”),
filed a Complaint, Petition for Writ of Mandamus and Jury Demand against the Township of Marengo, Michigan. The Complaint was
filed in the United States District Court – Western District of Michigan – Southern Division and the Case Number is: 1:22-cv-00321.
The Complaint is an action for equitable, declaratory and injunctive relief arising out of Township’s false promises, constitutional
violations by the Township’s deprivation of Plaintiffs’ civil rights through its refusal and failure to comply with its own
ordinances and state law as well as a common dispute resolution mechanism. On April 7, 2022, the Trust filed a Motion for expedited
trial and on April 21, 2022, the Township of Marengo, Michigan filed a reply brief.
On
April 8, 2022, JKL2 Inc., Chelsey Joseph, Alan Kane and Jill Lamoureux (collectively the “JKL Parties”) filed a complaint
in District Court, Crowley County Colorado (Case Number: 2022CV30009) against PW CO CanRe JKL LLC, Power REIT and David H. Lesser (the
“Power REIT parties”) and Crowley County Builders, LLC and Dean Hiatt (the “CC Parties”). The complaint is seeking
a judgement against the Power REIT Parties for (i) fraudulent inducement and (ii)breach of duty of good faith and fair dealing and (iii)
civil conspiracy and (iv) unjust enrichment. On May 2, 2022, PW CO CanRe JKL LLC commenced an eviction process against JKL2 Inc. for
failure to pay rent when due and will be counter-claiming seeking damages for unpaid rent. The Trust does not believe it has material
exposure to the claims brought by the JKL Parties beyond the costs associated with the litigation.
On
January 15, 2022, Power REIT’s subsidiary, PW CanRe Cloud Nine LLC (“PW Cloud Nine”), filed for the eviction of its
tenant Cloud Nine for failure to pay rent when due. On February 11, 2022 the court granted a Writ of Restitution for the eviction of
Cloud Nine LLC. Cloud Nine LLC has appealed the eviction ruling. The appeal is still pending as of the date of this filing. The case
is pending in Crowley County Colorado District Court (Case Number: 222cv30004). Cloud Nine has deposited $25,000 cash bond with the court
and on April 29, 2022 PW Cloud Nine LLC filed a motion to increase the bond amount to reflect the full amount of unpaid rent (currently
$582,926.05) and continuing rent obligations of $83,275.15 per month.
On
May 3, 2022, 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, 2022 to shareholders of record on May
15, 2022.