| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash The
Trust considers all highly liquid investments with original maturity of three months or less to be cash equivalents. Power REIT places
its cash and cash equivalents with high-credit quality financial institutions; however, amounts are not insured or guaranteed by the
FDIC. Amounts included in restricted cash represents funds held by the Trust related to debt service payment reserve required by the
lender for the loan secured by the greenhouse properties and the balance of the controlled cash account to pay for collateralized property
related expenses. See Note 6 for further discussion of the debt service payment reserve requirement. The following table provides a reconciliation
of the Trust’s cash and cash equivalents and restricted cash that sums to the total of those amounts at the end of the periods
presented on the Trust’s accompanying Consolidated Statements of Cash Flow: SCHEDULE
OF CONSOLIDATED STATEMENTS OF CASH FLOW
June 30, 2024 December
31, 2023
Cash and cash equivalents $ 2,455,133 $ 2,202,632
Restricted cash 480,495 1,902,252
Cash and cash equivalents
and restricted cash $ 2,935,628 $ 4,104,884 Share
Based Compensation Accounting Policy The
Trust records all equity-based incentive grants to Officers and non-employee members of the Trust’s Board of Directors in general
and administrative expenses in the Trust’s Consolidated Statement of Operations based on their fair value determined on the date
of grant. Stock-based compensation expense is recognized on a straight-line basis over the vesting term of the outstanding equity awards. 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. Loss
per Common Share Basic
net loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common
shares outstanding. Diluted net loss per common share is computed similar to basic net loss 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. As of June 30, 2024 and December 31, 2023, the total number of common stock equivalents was 197,500 The
following table sets forth the computation of basic and diluted loss per Share: SCHEDULE
OF COMPUTATION OF BASIC AND DILUTED INCOME PER COMMON SHARE
2024 2023 2024 2023
Three Months
Ended Six Months
Ended
June
30, June
30,
2024 2023 2024 2023
Numerator:
Net loss $ (19,145,169 ) $ (2,191,439 ) $ (21,222,167 ) $ (2,530,485 )
Preferred Stock Dividends (163,207 ) (163,207 ) (326,414 ) (326,414 )
Numerator for basic and diluted EPS - loss
available to common shareholders $ (19,308,376 ) $ (2,354,646 ) $ (21,548,581 ) $ (2,856,899 )
Denominator:
Denominator for basic and diluted EPS - Weighted
average shares 3,389,661 3,389,661 3,389,661 3,389,661
Basic and diluted loss per common share $ (5.70 ) $ (0.69 ) $ (6.36 ) $ (0.84 ) 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, 2024 and
2023, there were no 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 the Trust’s 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 37 183,000 605,000 672,000 1,209,000 Assets
Held for Sale Assets
held for sale are measured at the lower of their carrying amount or estimated fair value less cost to sell. As of June 30, 2024 and December
31, 2023, the Trust has nine properties that are considered assets held for sale. See Note 7 for discussion of the Trust’s assets held for sale. Impairment
of Long-Lived Assets Real
estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of the property might not be recoverable, which is referred to as a “triggering event.” A property to
be held and used is considered impaired only if management’s estimate of the aggregate future cash flows, less estimated capital
expenditures, to be generated by the property, undiscounted and without interest charges, are less than the carrying value of the property.
This estimate takes into consideration factors such as expected future operating income, trends and prospects, as well as the effects
of demand, competition and other factors. If
there is a triggering event in relation to a property to be held and used, the Trust will estimate the aggregate future cash flows, less
estimated capital expenditures, to be generated by the property, undiscounted and without interest charges. In addition, this estimate
may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of
a long-lived asset are under consideration or when a range of possible values is estimated. The
determination of undiscounted cash flows requires significant estimates by management, including the expected course of action at the
balance sheet date that would lead to such cash flows. Subsequent changes in estimated undiscounted cash flows arising from changes in
the anticipated action to be taken with respect to the property could impact the determination of whether an impairment exists and whether
the effects could materially affect the Trust’s net income. To the extent estimated undiscounted cash flows are less than the carrying
value of the property, the loss will be measured as the excess of the carrying amount of the property over the estimated fair value of
the property. While
the Trust believes its estimates of future cash flows are reasonable, different assumptions regarding a number of factors, including
market rents, listing prices, economic conditions, and occupancies, could significantly affect these estimates. When impairment
exists, the long-lived asset is adjusted to an estimate of fair value. In estimating fair value, the Trust uses the sales
comparable, income or cost approach methodology where applicable within appraisal reports. The Trust will record an impairment
charge if it believes that there is other than a temporary decline in market value below the carrying value of the investment.
During the first quarter 2024, an impairment charge was expensed in the amount of approximately $ 550,000 17,449,000 17,999,000 no Any
decline in the estimated fair values of the Trust’s assets could result in impairment charges in the future. It is possible that such impairments,
if required, could be material. Revenue
Recognition The
Railroad Lease (“P&WV 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 and three months ended June 30, 2024, the Trust did not write
off any straight-line rent receivable against rental income. During the six and three months ended June 30, 2023, the Trust wrote off
a net amount of approximately $ 315,000 Lease
revenue from land that is subject to an operating lease without rent escalation provisions is recorded on a straight-line basis. The
following table provides the breakdown of rental income recognition (not including the direct finance lease): SCHEDULE
OF BREAKDOWN OF RENTAL INCOME RECOGNITION
2024 2023 2024 2023
Three Months
Ended Six Months
Ended
June
30, June
30,
2024 2023 2024 2023
Straight-Line Rent $ 200,779 $ 223,152 $ 401,558 $ 483,465
Cash Basis Rent 29,000 (293,537 ) 88,860 140,842
Rental
income $ 229,779 $ (70,385 ) $ 490,418 $ 624,307 Deferred rent receivable as of June 30, 2024 and December 31, 2023 is approximately $ 493,000 452,000 Prepaid
rent liability as of June 30, 2024 and December 31, 2023 is approximately $ 0 33,000 Intangibles 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 20.7 114,000 57,000 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: SCHEDULE
OF INTANGIBLE ASSETS
For
the Six Months Ended June 30, 2024
Accumulated
Amortization Accumulated
Amortization Net
Book
Cost Through 12/31/23 2024 Value
Asset Intangibles - PWRS $ 4,713,548 $ 2,209,127 $ 113,744 $ 2,390,677 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
2024 (Six months remaining) $ 113,744
2025 $ 227,488
2026 $ 227,488
2027 $ 227,488
2028 $ 227,488
Thereafter 1,366,981
Total $ 2,390,677 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, 2024 and December 31, 2023. Other
Liabilities Other
liabilities as of June 30, 2024 and December 31, 2023 is approximately $ 137,000 58,000 58,000 The loan is payable
annually over five years with a 1.9% interest rate and matures on August 21, 2028. 80,000 Other
Assets Other
assets as of June 30, 2024 and December 31, 2023 is approximately $ 62,000 70,000 Mortgage
Loan Receivables On
October 30, 2023, PW ME CanRE SD LLC (“PW SD”) provided seller financing in connection with the sale of the two Maine properties
in the form of an $ 850,000 8.5 On
January 6, 2024, PW CO CanRE MF LLC (“PW MF”) provided seller financing in conjunction with selling the Sherman 6 and Tamarack
14 properties in the amount of $ 1,250,000 10 15 The seller
financing has a three-year maturity with a fixed amortization schedule of $75,000 for the first month, $40,000 for the second and third
months, $45,000 for the fourth month and $15,000 per month thereafter until maturity. Other
Income Other
income included in Total Revenue for the six months ended June 30, 2024 and 2023 is approximately $ 106,000 141,000 73,000 32,000 26,000 61,000 60,000 23,000 26,000 General
and Administrative Expenses General
and Administrative Expense for the six months ended June 30, 2024 and 2023 is approximately $ 813,000 892,000 407,000 452,000 359,000 465,000 191,000 225,000 Interest
Expense Interest
expense for the three months ended June 30, 2024 and 2023, is approximately $ 1,144,000 516,000 373,000 652,000 366,000 2,159,000 1,005,000 624,000 1,189,000 619,000 |
