Power REIT

1 –GENERAL INFORMATION

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.

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 the Trust’s audited consolidated financial statements and notes included in its latest Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on March 29, 2024.

The Trust is structured as a holding company and owns its assets through twenty-four 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 September 30, 2024 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 447 acres of fee simple land leased to a utility scale solar power generating project with a generating capacity of approximately 82 Megawatts (“MW”) and approximately 249 acres of land with approximately 2,112,000 square feet of existing or under construction Controlled Environment Agriculture (“CEA”) properties in the form of greenhouses.

During the nine months ended September 30, 2024, the Trust did not declare quarterly dividends of approximately $490,000 ($0.484375 per share per quarter) on Power REIT’s 7.75% Series A Cumulative Redeemable Perpetual Preferred Stock.

On January 8, 2024, two wholly owned subsidiaries of Power REIT, PW CO CanRE Sherman 6 LLC and PW CO CanRE MF LLC, sold two cannabis related greenhouse cultivation properties located in Ordway, Colorado to an affiliate of a tenant of one of the properties. The properties are described in prior filings as Sherman 6 (the tenant of which is affiliated with the tenant/purchaser) and Tamarack 14 which was vacant. The purchaser was an unaffiliated third party and the price was established based on an arm’s length negotiation. The sale price was $1,325,000. As part of the transaction, a subsidiary of the Trust provided seller financing in the amount of $1,250,000 with an initial 10% interest rate that increases over time to 15% until maturity. 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. The note is secured by a first mortgage on the properties and certain corporate and personal guarantees.

On January 30, 2024, a wholly owned subsidiary of Power REIT, PW Salisbury Solar LLC, sold its interest in a ground lease related to a utility scale solar farm located in Salisbury, Massachusetts. for gross proceeds of $1.2 million. The purchaser was an unaffiliated third party and the price was established based on an arm’s length negotiation. As part of the transaction, the existing municipal financing (“Municipal Debt”) and the regional bank loan (“PWSS Term Loan”) were paid off.

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, 2023, the last tax return completed to date, the Trust has a net operating loss of $30.8 million, which may reduce or eliminate this requirement.

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:

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”). Certain immaterial prior year amounts have been reclassified for consistency with the current period presentation.

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 September 30, 2024 and September 30, 2023, the total number of common stock equivalents was 192,778 and 197,500 and composed of stock options.

The following table sets forth the computation of basic and diluted loss per Share:

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 nine months ended September 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, broker opinions of value, 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:

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 PW CA Canndescent, LLC which was determined the buildings have a useful life of 37 years. For the three months ended September 30, 2024 and 2023, approximately $146,000 and $566,000 of depreciation expense was recorded, respectively. For the nine months ended September 30, 2024 and 2023, approximately $817,000 and $1,775,000 depreciation expense was recorded, respectively.

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 September 30, 2024 and December 31, 2023, the Trust has several 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, if appraisal reports are available, the Trust uses the sales comparable, income or cost approach methodology where applicable within appraisal reports; when appraisal reports are not available, the Trust uses opinions of value from brokers involved with listing properties for sale and other market value information available to it. 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; during the second quarter, 2024, an impairment charge was expensed in the amount of approximately $17,449,000 and during the third quarter 2024, an impairment charge was expensed in the amount of approximately $195,000. Therefore, the total impairment charge expense for the nine months ended September 30, 2024 is approximately $18,194,000 for assets all considered held for sale as of September 30, 2024. There wasno impairment charge during the first and second quarter 2023. During the third quarter 2023, an impairment charge was recognized in the amount of approximately $8,235,000, totaling approximately $8,235,000 of impairment expense for the nine months ended September 30, 2023 for assets considered held for sale and held for use.

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 three and nine months ended September 30, 2024, the Trust did not write off any straight-line rent receivable against rental income. During the three months ended September 30, 2023, the Trust did not write off any straight-line receivable against rental income but during the nine months ended September 30, 2023, the Trust wrote off a net amount of approximately $315,000 in straight-line rent receivable against rental income. This was based on its assessment of collecting all remaining contractual rent on greenhouse property leases. These tenants’ rent payments will be recorded as rental revenue on a cash basis. 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 unless paid by the Trust.

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) During the quarter ended September 30, 2024, the Trust recognized $924,724 of rental income for non-refundable security deposits related to defaulted leases as allowed per the terms of the lease and based on the determination that these defaults will be not be cured:

Deferred rent receivable as of September 30, 2024 and December 31, 2023 is approximately $332,000 and $452,000, respectively.

Prepaid rent liability as of September 30, 2024 and December 31, 2023 is approximately $0 and $33,000, respectively.

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, which is amortized over a 20.7-year period. For each of the nine months ended September 30, 2024 and 2023, approximately $171,000 of the intangibles was amortized. For each of the three months ended September 30, 2024 and 2023, approximately $57,000 of the intangibles was amortized.

Intangible assets are evaluated whenever events or circumstances indicate the carrying value of these assets may not be recoverable. There wereno impairment charges recorded for the three and nine months ended September 30, 2024 and 2023.

The following table provides a summary of the Intangible Assets:

The following table provides a summary of the current estimate of future amortization of Intangible Assets for the subsequent years ending December 31:

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.

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 September 30, 2024 and December 31, 2023.

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 note with an 8.5% interest rate that will accrue until maturity on October 30, 2025. The note is secured by a second mortgage on the property and certain corporate and personal guarantees. PW SD assessed the collectivity and deemed no allowance is needed as of September 30, 2024. The Note is owned by a subsidiary which has guaranteed the Greenhouse Loan which is in default and non-recourse to the Trust.

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 with an initial 10% interest rate that increases over time to 15% until maturity. 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. The note is secured by a first mortgage on the properties and certain corporate and personal guarantees. PW MF assessed the collectivity and deemed no allowance is needed as of September 30, 2024. The note is security for the Greenhouse Loan which is in default and non-recourse to the Trust.

Other Income

Other income included in Total Revenue for the three months ended September 30, 2024 and 2023 is approximately $59,000 which is mainly interest income of approximately $55,800 and $27,000 which is interest income, respectively. Other income included in Total Revenue for the nine months ended September 30, 2024 and 2023 is approximately $165,000 which is interest income, and approximately $141,000 which mainly consists of approximately $73,000 settlement of property tax payable with sale of one property and $59,000 interest income, respectively.

Forgiveness of Accounts Payable

Forgiveness of accounts payable for the three months ended September 30, 2024 and 2023 is approximately $351,000 and $0. Forgiveness of accounts payable for the nine months ended September 30, 2024 and 2023 is approximately $351,000 and $27,000. These amounts in 2024 are related to discounts obtained as part of written settlement agreements associated with litigations that were filed against subsidiaries of the Trust.

General and Administrative Expenses

General and Administrative Expense for the three months ended September 30, 2024 and 2023 is approximately $338,000 and $439,000, respectively, which mainly includes a non-cash stock compensation expense of approximately $143,000 for 2024 and approximately $216,000 for 2023. General and Administrative Expense for the nine months ended September 30, 2024 and 2023 is approximately $1,151,000 and $1,331,000, respectively, which mainly includes a non-cash stock compensation expense of approximately $550,000 for 2024 and 669,000 for 2023.

Interest Expense

Interest expense for the three months ended September 30, 2024 was approximately $172,000, $81,000 and $619,000 related to the PW PWV Loan (defined below), the 2015 PWRS Loan (defined below) and the Greenhouse Loan, respectively, compared to approximately $175,000, $86,000 and $399,000, respectively, for the three months ended September 30, 2023. Interest expense for the nine months ended September 30, 2024 was approximately $518,000, $249,000 and $2,248,000 related to the PW PWV Loan, the 2015 PWRS Loan and the Greenhouse Loan, respectively, compared to approximately $526,000, $264,000 and $1,044,000, related to the PW PWV Loan (defined below), the 2015 PWRS Loan (defined below) and the Greenhouse Loan respectively, for the nine months ended September 30, 2023. The Greenhouse Loan is currently in default and is non-recourse to the Trust.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The purpose of the amendment is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. The Trust is continuing to evaluate the impact of adopting this new guidance but does not expect it to have a material impact on the Trust’s financial statements.

2.A –Restatement of Previously Filed Financial Statements

Restatement of Previously Filed Financial Statements

As previously disclosed on Form 8-K filed on September 3, 2024, the Trust received a letter from the NYSE American regarding a lack of compliance with listing requirements (the “Deficiency Letter”). Specifically, since the Trust had incurred losses in two out of the last three years, it is required to have total equity of greater than $2 million. As part of evaluating a plan to comply with the NYSE American listing requirements, the Trust embarked on analysis of the accounting treatment for its Preferred Shares which historically were classified as Mezzanine Equity. Based on its review, the Trust determined that the Preferred Shares should be treated as Equity. The Trust retained a qualified third-party consultant to assist with its analysis of the accounting treatment for the Preferred Shares. Ultimately, the Trust concluded that it had incorrectly classified the Preferred Shares on its balance sheet and that they should be treated as Equity (not mezzanine equity) and the financial statements should be re-stated accordingly.

While the Trust believes that the restatement may be material from a quantitative perspective, it does not believe that the restatement is material from a qualitative standpoint other than for the second quarter of 2024 as a result of the non-compliance with the NYSE listing requirements. Accordingly, the Trust believes it is appropriate to file an amended 10-Q for the quarter ended June 30, 2024 on Form 10-Q/A which was filed with the SEC on September 24, 2024 (the 10-Q/A). Management concluded that for the rest of the prior periods, the error was immaterial and corrected within the 10-Q/A.

The only changes to the financial Statements contained in the original Form 10-Q and the 10-Q/A for the quarter ended June 30, 2024 are:

The following table presents the effect of the revision on the Condensed Consolidated Balance Sheet as of December 31, 2023.

The following tables present the effect of the revision on the Trust’s previously reported Condensed Changes in Shareholder’s Equity as of December 31, 2022, March 31, 2023, June 30, 2023, September 30, 2023 and March 31, 2024. The following tables also present the effect of the restatement on the Trust’s previously reported Condensed Changes in Shareholder’s Equity as of June 30, 2024.

The restatement contained in the 10-Q/A increased the Trust’s Total Equity on its consolidated Balance Sheet to approximately $10 million which is above the threshold required for NYSE American compliance as of June 30, 2024. On September 26, 2024, the Trust filed a Form 8-K with the SEC and issued a Press Release indicating that it received a notice from the NYSE American LLC rescinding the Deficiency Letter based on having total equity in excess of the applicable $2 million requirement. As of September 30, 2024, the Trusts Total Equity is approximately $9.77 million which is above the applicable requirement. There can be no assurance that the Trust will continue to comply with the NYSE American listing requirements in the future.

3 –GOING CONCERN

The Trust’s objectives when managing its capital are to seek to ensure that there are adequate capital resources to safeguard the Trust’s ability to continue operating and maintain adequate levels of funding to support its ongoing operations and development such that it can continue to provide returns to shareholders. The Trust’s management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that the financial statements are issued.

The Trust’s cash and cash equivalents and restricted cash totaled $2,395,642 as of September 30, 2024, a decrease of $1,709,242 from December 31, 2023. During the nine months ended September 30, 2024, the decrease in cash was primarily due to the property carrying costs for the properties that are security for the Greenhouse Loan and paydown of the Greenhouse Loan.

The Trust’s current loan liabilities totaled approximately $17.0 million as of September 30, 2024. The current loan liabilities include approximately $16.3 million for the Greenhouse Loan which is in default and is non-recourse to the Trust.

Of the total amount of cash, approximately $2.2 million is non-restricted cash available for general corporate purposes and approximately $163,000 is restricted cash related to the Greenhouse Loan.

For the nine months ended September 30, 2024, the Trust determined that there was substantial doubt as to its ability to continue as a going concern as a result of current liabilities that far exceed current assets, net losses incurred, reduced revenue and increased property expenses related to the greenhouse portfolio.

In early 2024, the Trust sold three properties which is expected to help with liquidity. The net proceeds from the sale of the Salisbury, MA property was approximately $662,000 of unrestricted cash and the approximately $456,000 loan was retired at closing and is eliminated from current liabilities. The sale of two greenhouse properties in Colorado produced approximately $53,000 of restricted cash and should generate cash flow from the seller financing provided that should provide cash to help service the Greenhouse Loan.

The Greenhouse Loan is in default and the subject of litigation (see Note 6 – LONG-TERM DEBT). Power REIT continues to try to work with the lender to establish a path forward. However, the Greenhouse Loan is non-recourse to Power REIT which means that in the event it cannot resolve issues with the lender and they foreclose on the properties, Power REIT should be able to continue as a going concern albeit with a smaller portfolio of assets given that non-restricted cash should provide greater than twelve months of liquidity for capital needs unrelated to the greenhouse properties which are security for the Greenhouse Loan. In addition, it is possible that the Greenhouse Loan will lead to distressed sales including possibly through foreclosures, which would have a negative impact on the Trust’s prospects. A forbearance agreement with the lender for the Greenhouse Loan was effective on May 10, 2024, which provides additional time to retire the loan. The expiration date of the original forbearance agreement was September 30, 2024. On September 30, 2024, PW CanRE Holdings (defined below) entered into an amendment to the forbearance agreement which moves the expiration of the forbearance agreement to January 31, 2025. PW CanRE Holdings is in discussions with the lender to continue a process of orderly sales of assets to try and maximize value but there can be no assurance the bank will extend the forbearance again if the loan is not retired in a timely fashion. There can be no assurance that the efforts to sell, re-lease or recapitalize the assets which are security for the Greenhouse Loan will ultimately retire the loan per the requirements of the forbearance agreement.

As of the filing date, The Trust’s current liabilities far exceed current assets. If the Trust’s plan to focus on selling properties, entering into new leases, improving cash collections from existing tenants and raising capital in the form of debt or equity is effectively implemented, the Trust’s plan could potentially provide enough liquidity. However, the Trust cannot predict, with certainty, the outcome of its actions to generate liquidity.

Power REIT’s cash outlays at the parent company level consist principally of professional fees, consultant fees, NYSE American listing fees, legal, insurance, shareholder service company fees, auditing costs, and general and administrative expenses. The Trust’s cash outlays related to its various property-owning subsidiaries consist principally of principal and interest expense on debts property maintenance, property taxes, insurance, legal as well as other property related expenses that are not covered by tenants. To the extent the Trust needs to raise additional capital to meet its obligations, there can be no assurance that financing on favorable terms will be available when needed. If Power REIT is unable to sell certain assets when anticipated at prices anticipated, we may not have sufficient cash to fund operations and commitments.

4 –ACQUISITION AND DISPOSITION

2024 Disposition

On January 8, 2024, two wholly owned subsidiaries of Power REIT, PW CO CanRE Sherman 6 LLC and PW CO CanRE MF LLC, sold two cannabis related greenhouse cultivation properties located in Ordway, Colorado to an affiliate of a tenant of one of the properties. The properties are described in prior filings as Sherman 6 (the tenant of which is affiliated with the tenant/purchaser) and Tamarack 14 which was vacant. The purchaser is an unaffiliated third party and the price was established based on an arm’s length negotiation. The sale price was $1,325,000. As part of the transaction, a subsidiary of the Trust provided seller financing in the amount of $1,250,000 with an initial 10% interest rate that increases over time to 15% until maturity. 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. The note is secured by a first mortgage on the properties and certain corporate and personal guarantees. The gain on sale recognized was approximately $213,000.

Sherman 6 Property:

Tamarack 14 Property:

On January 30, 2024, a wholly owned subsidiary of Power REIT, PW Salisbury Solar LLC, sold its interest in a ground lease related to a utility scale solar farm located in Salisbury, Massachusetts. for gross proceeds of $1.2 million. The purchaser is an unaffiliated third party and the price was established based on an arm’s length negotiation. As part of the transaction, the Municipal Debt and the PWSS Term Loan were paid off. The gain on sale recognized was approximately $181,000 and the net book value of land upon sale was approximately $1,006,000.

2023 Disposition

On January 6, 2023, a wholly owned subsidiary of Power REIT, sold its interest in five ground leases related to utility scale solar farms located in Tulare County, California for gross proceeds of $2,500,000. The purchaser is an unaffiliated third party and the price was established based on an arm’s length negotiation. The properties were acquired by Power REIT in 2013 for $1,550,000 and Power REIT recognized a gain on sale of approximately $1,040,000.

5 –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 or on a cash basis for tenants with collectability issues. During the three and nine months ended September 30, 2024, the Trust did not write off any straight-line rent receivable against rental income. During the three months ended September 30, 2023, the Trust did not write off any straight-line rent receivable against rental income but during the nine months ended September 30, 2023, the Trust wrote off a net amount of approximately $315,000, in straight-line rent receivable against rental income based on its current assessment of collecting all remaining contractual rent on the greenhouse property leases. Total revenue from its leases recognized for the three months ended September 30, 2024 and 2023 is approximately $1,367,000 (which includes recognition of approximately $925,000 of rental income for non-refundable security deposits related to defaulted leases) and $462,000, respectively. Total revenue from its leases recognized for the nine months ended September 30, 2024 and 2023 is approximately $2,315,000 (which includes recognition of approximately $925,000 of rental income for non-refundable security deposits related to defaulted leases as allowed per the terms of the lease and based on the determination that these defaults will be not be cured) and $1,544,000, respectively.

Due to significant price compression in the wholesale cannabis market, many of the Trust’s cannabis related tenants are currently experiencing severe financial distress. Unfortunately, starting in 2022, collections from the CEA portfolio has diminished to a nominal amount. The Trust is exploring strategic alternatives with respect to the CEA portfolio and has listed some of the assets for sale and may list additional assets.

Historically, the Trust’s revenue has been concentrated to a relatively limited number of investments, industries and lessees. During the nine months ended September 30, 2024, Power REIT collected approximately 92% of its consolidated revenue from two properties. The tenants were Norfolk Southern Railway and Regulus Solar, LLC which represent 49% and 43% of consolidated revenue, respectively. The concentration percentages do not include the income from the recognition of security deposits related to defaulted leases. Comparatively, during the nine months ended September 30, 2023, Power REIT collected approximately 83% of its consolidated revenue from two properties. The tenants were Norfolk Southern Railway and Regulus Solar, LLC, which represent 44%, and 39% of consolidated revenue respectively.

The following is a schedule by years of minimum future rentals on non-cancelable operating leases as of September 30, 2024 for assets held for use and assets held for sale where revenue recognition is considered on a straight-line basis:

6 –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 had approximately 9 years remaining. The Municipal Debt had 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 September 30, 2024 and December 31, 2023 is approximately $0 and $51,000, respectively. On January 30, 2024, the PWSS property was sold and the loan was paid off.

In July 2013, PWSS borrowed $750,000 from a regional bank (the “PWSS Term Loan”). The PWSS Term Loan had 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 was secured by PWSS’ real estate assets and a parent guarantee from the Trust. The balance of the PWSS Term Loan as of September 30, 2024 and December 31, 2023 is approximately $0 and $456,000 (net of approximately $0 of capitalized debt costs), respectively. On January 30, 2024 the PWSS property was sold and the loan was paid off.

On November 6, 2015, PWRS entered into a 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 September 30, 2024 and December 31, 2023, the balance of the 2015 PWRS Loan was approximately $6,506,000 (net of unamortized debt costs of approximately $219,000) and $6,957,000 (net of unamortized debt costs of approximately $235,000), respectively.

On November 25, 2019, Power REIT, through a subsidiary, PW PWV Holdings LLC (“PW PWV”), entered into a 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 September 30, 2024 and December 31, 2023 is $14,253,000 (net of approximately $269,000 of capitalized debt costs) and $14,412,000 (net of approximately $276,000 of capitalized debt costs).

On December 21, 2021, a wholly-owned subsidiary of Power REIT (“PW CanRE Holdings”) entered into a debt facility with initial availability of $20 million (the “Greenhouse Loan”). The facility is non-recourse to Power REIT and has perfected liens against all of Power REIT CEA portfolio properties except for the property located in Vinita, OK. The Greenhouse Loan had a 12 month draw period and then converts to a term loan that is fully amortizing over five years. The interest rate on the Greenhouse Loan was 5.52% with an additional default interest rate of 5.0% 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. On October 28, 2022, the terms of the Greenhouse Loan were amended such that the amortization period was extended from 5 years to 10 years for the calculation of debt service coverage ratio and a 6-month debt service payment reserve requirement of $1 million was established. On March 13, 2023 an additional modification of the terms of the Greenhouse Loan was implemented which is summarized as follows:

Debt issuance expenses of $0 have been capitalized during the three and nine months ended September 30, 2024 and 2023, respectively. Amortization of approximately $0 and $38,800 has been recognized for the nine months ended September 30, 2024 and 2023, respectively and $0 and approximately $46,000 deferred debt issuance costs were re-classed as contra liability upon the loan commitment reduction for the nine months ended September 30, 2024 and 2023. Amortization of approximately $0 and $13,000 has been recognized for the three months ended September 30, 2024 and 2023, respectively. The balance of the loan as of September 30, 2024 and December 31, 2023 is approximately $16,276,000 (net of approximately $0 of debt costs) and $14,358,000 (net of approximately $0 of debt costs). During the nine months ended September 30, 2024 and 2023, the Trust recognized $0 and $160,000, respectively of loan modification expense. During the three months ended September 30, 2024 and 2023, the Trust did not recognize any loan modification expense in connection with the modification. During the nine months ended September 30, 2024 and 2023, the Trust recognized approximately $739,000 and $0, respectively, of late charges, forbearance fees, legal fees, foreclosure fees and appraisal fees which is included in interest expense in Consolidated Statements of Operations. During the three months ended September 30, 2024 and 2023, the Trust recognized approximately $116,000 and $0, respectively, of late charges, forbearance fees, legal fees, foreclosure fees and appraisal fees which is included in interest expense in Consolidated Statements of Operations. During the nine and three months ended September 30, 2024, approximately $2,801,000 of accrued loan expenses related to the Greenhouse Loan was reclassified from accrued expenses to current portion of long-term debt.

As of September 30, 2024, PW CanRe Holdings, LLC has an outstanding balance on the Greenhouse Loan of $16,276,000. The lender has declared a default of the loan which allows for the acceleration of the Greenhouse Loan which is being treated as a current debt obligation. On March 13, 2024, East West Bank (“EWB”) initiated a complaint in the Superior Court of California, County of Los Angeles (Case 24STCV06180) against PW CanRE Holdings, LLC, PW CanRE of Colorado Holdings LLC, PW ME CanRE SD LLC, PW CO CanRE Walsenburg LLC, PW Co CanRE JKL LLC, PW CO CanRE JAB LLC, PW CO CanRE Tam 19 LLC, PW CO CanRE Mav 14 LLC, PW CO CanRE Gas Station LLC, PW CO CanRE Grail LLC, PW CO CanRE Tam 7 LLC, PW CO CanRE Cloud Nine LLC, PW CO CanRE Apotheke LLC, PW CO CanRE Mav 5 LLC, PW CO CanRE MF LLC, PW MillPro NE LLC, PW CA CanRE Canndescent LLC and PW MI CanRE Marengo LLC. The litigation relates to a loan secured by various properties held by PW CanRE Holdings, LLC through its ownership of the various subsidiaries that are also named in the complaint. The complaint is seeking (i) Judicial Foreclosure (ii) Specific Performance (iii) Appointment of Receiver; (iv) Injunctive Relief; (v) Breach of Contract (Security Agreement); (vi) Breach of Contract (Guaranty); (vii) Money Due; and (viii) Account Stated. There can be no assurance that PW CanRe, LLC Holdings will be able to satisfy the requirements of the lender which could result in the foreclosure of collateral. Although the Greenhouse Loan is non-recourse to Power REIT, foreclosure of properties would result in a decrease in assets and potential income to Power REIT. A forbearance agreement with the lender for the Greenhouse Loan was effective on May 10, 2024, which provides additional time to retire the loan. The expiration date of the original forbearance agreement was September 30, 2024. On September 30, 2024, the Trust entered into an amendment to the forbearance agreement which moves the expiration of the forbearance agreement to January 31, 2025. We are in discussions with the lender to continue a process of orderly sales of assets to try and maximize value but there can be no assurance the bank will extend the forbearance again if the loan is not retired in a timely fashion. There can be no assurance that the efforts to sell, re-lease or recapitalize the assets which are security for the Greenhouse Loan will ultimately retire the loan per the requirements of the forbearance agreement.

The amount of principal payments remaining on Power REIT’s long-term debt as of September 30, 2024 including the modified repayment schedule for the Greenhouse Loan is as follows:

7 –IMPAIRMENT AND ASSET HELD FOR SALE

During the first, second and third quarter of 2024, the Trust concluded that an impairment of value of certain assets within its greenhouse portfolio was appropriate based on challenging market conditions including updated listing broker and market feedback evaluated during the first, second and third quarter of 2024. During the third quarter of 2024, subsidiaries of the Trust listed additional properties for sale. Based on this, during the three months ended September 30, 2024, the Trust recorded a non-cash impairment charge of approximately $195,000 related to the brokerage listing fees that would be incurred upon a sale. The Trust incurred a non-cash impairment charge of approximately $8.2 million during the three months ended September 30, 2023. During the nine months ended September 30, 2024 and 2023, the Trust recorded a non-cash impairment charge of approximately $18.2 million and $8.2 million, respectively.

The bulk of the greenhouse portfolio is security for the Greenhouse Loan which is in default which may negatively impact the values received from marketing these assets for sale. Any further 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.

A summary of the Trust’s impairment expense is below:

The Trust has aggregated and classified the assets and liabilities of properties to be sold as held for sale in its Consolidated Balance Sheets as of September 30, 2024 since all criteria under ASC 360-10-45-9 were met. The prior period comparative balance sheet as of December 31, 2023 is recast to achieve comparability. The balance sheet as of December 31, 2023 also included the Salisbury and Sherman 6 properties which were sold during the first quarter of 2024 and therefore removed from the September 30, 2024 column. The assets and liabilities of assets held for sale were as follows:

Other Liabilities

Other liabilities as of September 30, 2024 and December 31, 2023 is approximately $58,000, which includes the finance loan agreement for the tractor used at the Nebraska greenhouse for both years. The loan is payable annually over five years with a 1.9% interest rate and matures on August 21, 2028.

Other Assets

Other assets as of September 30, 2024 and December 31, 2023 is approximately $71,000 and approximately $70,000, respectively, which mainly represents a tractor purchased by PW MillPro NE on August 21, 2023 for use at the Nebraska greenhouse (net of depreciation).

8 –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 September 30, 2024, the aggregate number of shares of Common Stock that may be issued pursuant to outstanding awards is currently 1,925,002 which is subject to adjustment per the Plan.

Summary of Stock Based Compensation Activity – Options

On July 15, 2022, the Trust granted non-qualified stock options (“options”) to acquire 205,000 shares of common stock at a price of $13.44 to its independent trustees, officers and an employee. The term of each option is 10 years. The options vest over three years as follows: in a series of thirty-six (36) equal monthly installments measured from the Vesting Commencement Date on the same date of the month as the Vesting Commencement Date which is August 1, 2022.

The Trust accounts for share-based payments using the fair value method. The Trust recognizes all share-based payments in its financial statements based on their grant date fair values and market closing price, calculated using the Black-Scholes option valuation model.

The following assumptions were made to estimate fair value:

The Trust uses historical data to estimate dividend yield and volatility and the “simplified method” as described in the SEC Staff Accounting Bulletin #110 to determine the expected term of the option grants. The risk-free interest rate for the expected term of the options is based on the U.S. treasury yield curve on the grant date. The Trust does not have historical data of forfeiture and used a 0% forfeiture rate in calculating unrecognized share-based compensation expense and will account for forfeitures as they occur. On January 31, 2023,6,250 options and on April 30, 2023,1,250 options were forfeited by an employee who is no longer employed by the Trust. On February 29, 2024,4,722 options were forfeited due to the death of a Trustee.

The summary of stock-based compensation activity for the nine months ended September 30, 2024, with respect to the Trust’s stock options, is as follows:

The weighted average remaining term of the options is 7.6 years.

Summary of Stock Based Compensation Activity – Restricted Stock

The summary of stock-based compensation activity for the nine months ended September 30, 2024, with respect to the Trust’s restricted stock, was as follows:

Stock-based Compensation

During the nine months ended September 30, 2024, the Trust recorded approximately $174,000 of non-cash expense related to restricted stock and approximately $377,000 of non-cash expense related to options granted compared to approximately $276,000 of non-cash expense related to restricted stock and approximately $393,000 of non-cash expense related to options granted for the nine months ended September 30, 2023. During the three months ended September 30, 2024, the Trust recorded approximately $22,000 of non-cash expense related to restricted stock and approximately $121,000 of non-cash expense related to options granted compared to approximately $86,000 of non-cash expense related to restricted stock and approximately $131,000 of non-cash expense related to options granted for the three months ended September 30, 2023. As of September 30, 2024, there was approximately $52,000 of total unrecognized share-based compensation expense for restricted stock and approximately $403,000 of total unrecognized share-based expense for options, which expense will be recognized through the third quarter of 2025. 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

The Trust filed a June 30, 2024 Form 10-Q/A to amend the classification of the Preferred Stock from mezzanine equity to equity on its Consolidated Balance Sheet. As part of this reclassification, the Trust also eliminated the accrual of dividends consistent with treatment of the Preferred Stock as Equity. The Consolidated Statement of Changes in Shareholders’ Equity also now includes the Preferred Stock consistent with its treatment as Equity. During the three and nine months ended September 30, 2024, the Trust did not declare a total of approximately $163,000 and $490,000, respectively of dividends to holders of Power REIT’s Series A Preferred Stock. As of September 30, 2024, the total amount of undeclared dividends related to the Series A Preferred Stock is approximately $1.3 million.

9 –RELATED PARTY TRANSACTIONS

Power REIT has a 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 or affiliates, established cannabis and food crop cultivation projects and entered into leases related to the Trust’s Oklahoma, Michigan and Nebraska properties and MILC is a lender to the tenant of one of the Trust’s Colorado properties. As of September 30, 2024, these properties are currently not operational and the Trust is evaluating alternatives related thereto. Total rental income recognized for the three and nine months ended September 30, 2024 and 2023 is $0 from the tenants that are affiliated with MILC in Colorado, Oklahoma and Nebraska. Total rental income recognized for the three and nine months ended September 30, 2024 was $785,000 and $785,000, respectively, from the tenant affiliated with MILC in Michigan based on the recognition of a security deposit as income during the third quarter of 2024. Total rental income recognized for the three and nine months ended September 30, 2023 is $0 from the tenants that are affiliated with MILC in Michigan. Power REIT retained former employees of MILC to maintain and upkeep the property in Nebraska. The MILC employees were initially paid through a payroll service used by a subsidiary of MILC and a subsidiary of Power REIT reimbursed MILC for the actual expenses related hereto. For the nine and three months ended September 30, 2023, total payments to MILC for payroll is $124,035 and $39,242. This arrangement ended in January 2024.

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, was to be supplied by IntelliGen Power Systems LLC (“IntelliGen”) which is owned by Hudson Bay Partners (“HBP”), an affiliate of David Lesser, Power REIT’s Chairman and CEO. As of September 30, 2024 and December 31, 2023, $1,102,500 and $1,102,500 has been paid to IntelliGen Power Systems LLC for equipment supplied. On January 23, 2023, the Sweet Dirt lease was amended to reduce the amount of improvements to be funded by PW SD to eliminate the remaining funding to IntelliGen with a corresponding reduction in lease payments to maintain the same overall yield.

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 HBP, IntelliGen and the lease transactions with subsidiaries and affiliates of MILC, the independent trustees approved such arrangements having determined such arrangement are fair and reasonable and in the interest of the Trust.

10 –LEGAL PROCEEDINGS

On November 17, 2023, Anchor Hydro (“Anchor”) initiated a complaint, as amended, in the Michigan Circuit Court for the County of Calhoun (Case No. 2023-3145-CB) against Power REIT, PW MI CanRE Marengo LLC (collectively the “PW Defendants”) for Breach of Contract, Unjust Enrichment and Account Stated in the amount of approximately $600,000. The litigation relates to purported work by Anchor at the greenhouse property owned by PW MI CanRE Marengo LLC in Michigan. On July 9, 2024, Anchor and the PW Defendants entered into a settlement agreement (the “Anchor Settlement”) whereby Anchor will complete certain work at the greenhouse property in Michigan and the PW Defendants will pay Anchor $265,000 ($150,000 up front and $11,500 per month for ten months commencing on September 1, 2024) as well as the return of certain uninstalled equipment provided by Anchor. In connection with the Anchor Settlement, the Trust recognized $351,000 as income related to forgiveness of accounts payable during the quarter ended September 30, 2024.

On September 11, 2024, PW CO CanRE Cloud Nine LLC received a Final Order and Entry of Judgement in favor of PW CO CanRE Cloud Nine LLC in the amount of approximately $10.9 million. The Trust is evaluating the potential to collect against the defendants in this litigation for this Judgement, but will treat any recovery on a cash basis for accounting purposes.