| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Numerator:
Net Income $ 944,928 $ 1,539,695 $ 1,942,808 $ 2,647,823
Preferred Stock Dividends (163,206 ) (163,202 ) (326,413 ) (326,412 )
Numerator for basic and diluted EPS - income available to common Shareholders $ 781,722 $ 1,376,493 $ 1,616,395 $ 2,321,411
Denominator:
Denominator for basic EPS - Weighted average shares 3,367,261 3,312,001 3,367,396 3,033,751
Dilutive effect of options - 86,313 - 85,228
Denominator for diluted EPS - Adjusted weighted average shares 3,367,261 3,398,314 3,367,396 3,118,979
Basic income per common share $ 0.23 $ 0.42 $ 0.48 $ 0.77
Diluted income per common share $ 0.23 $ 0.41 $ 0.48 $ 0.74 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 six months ended June 30, 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 evaluates 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 39 37 677,000 343,000 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 resulting in price increases and delays of such materials which is impacting construction timeframes. In addition, labor
shortages are impacting construction timeframes. Covid-19 is also impacting the financial performance of many of our tenants especially
related to our greenhouse portfolio which will impact their ability to pay rent. 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 six months ended June 30, 2022 and 2021, the Trust wrote off
a net amount of approximately $ 302,000 0 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 24.6 4,800 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 20.7 113,700 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 4.5 89,800 0 179,000 4.5 19,900 0 Intangible
assets are evaluated whenever events or circumstances indicate the carrying value of these assets may not be recoverable. There were
no The
following table provides a summary of the Intangible Assets and Liabilities: SCHEDULE OF INTANGIBLE ASSETS
For the Six Months Ended June 30, 2022
Accumulated Accumulated
Cost Amortization / Addition to Revenue Amortization / Addition to Revenue Net Book Value
Through 12/31/21 1/1/22 - 6/30/22
Asset Intangibles - PWTS $ 237,471 $ 81,695 $ 4,827 $ 150,949
Asset Intangibles - PWRS $ 4,713,548 $ 1,754,151 $ 113,744 $ 2,845,653
Asset Intangibles - Canndescent $ 807,976 $ 162,593 $ 89,775 $ 555,608
Asset Intangibles Total $ 5,758,995 $ 1,998,439 $ 208,346 $ 3,552,210
Liability Intangible - Canndescent $ (178,651 ) $ (35,951 ) $ (19,851 ) $ (122,849 ) The
following table provides a summary of the current estimate of future amortization of Intangible Assets for the subsequent years ending
December 31: SCHEDULE OF FUTURE AMORTIZATION OF INTANGIBLE ASSETS
2022 (6 months remaining) $ 208,344
2023 416,690
2024 416,690
2025 343,874
2026 237,141
Thereafter 1,929,471
Total $ 3,552,210 The
following table provides a summary of the current estimate of future addition to revenue for Intangible Liability for the subsequent
years ending December 31: SCHEDULE OF FUTURE ADDITION TO REVENUE FOR INTANGIBLE LIABILITIES
2022 (6 months remaining) $ 19,849
2023 39,700
2024 39,700
2025 23,600
Total $ 122,849 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 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 June 30, 2022 and December 31, 2021. |
