Investor Presenta,on
F
ORWARD
L
OOKING
S
TATEMENTS
Power REIT (“we” or the “Company”) has filed a registra,on statement (including a prospectus supplement and
accompanying prospectus) with the SEC for the offering referred to in this communica,on. Before you invest,
you should read the prospectus supplement and accompanying prospectus, and other documents the issuer
has filed with the SEC, for more complete informa,on about the Company and the offering. You may get these
documents for free by visi,ng EDGAR on the SEC website at www.sec.gov, by visi,ng our website at
www.pwreit.com and looking under Investor Rela,ons/ SEC filings or by emailing us at [email protected].
Alterna,vely, we will arrange to send you the prospectus supplement and accompanying prospectus if you
request them by calling 1-‐212-‐750-‐0373.
Throughout this presenta,on, we may make “forward-‐looking statements” as that term is defined in Sec,on
27A of the Securi,es Act of 1933, as amended (the “Securi,es Act”) and Sec,on 21E of the Securi,es Exchange
Act of 1934, as amended (the “Exchange Act”). Forward-‐looking statements include the words “may,” “would,”
“could,” “likely,” “es,mate,” “intend,” “plan,” “con,nue,” “believe,” “expect” or “an,cipate” and similar
words, as well as statements rela,ng to our acquisi,on, development and expansion plans, objec,ves and
expecta,ons, liquidity projec,ons, status and possible outcomes of li,ga,on and similar topics. Forward-‐
looking statements are not guarantees of future performance, and a variety of factors could cause our actual
results to differ materially from the an,cipated or expected results expressed in these forward-‐looking
statements. Readers are cau,oned not to put undue reliance on any forward-‐looking statements and are
advised to consider factors listed under the headings “Risk Factors” in our Annual Report on Form 10-‐K, as may
be supplemented or amended by the Company’s Quarterly Reports on Form 10-‐Q, Current Reports on Form 8-‐
K and other filings with the SEC. The Company assumes no obliga,on to update or supplement forward-‐
looking statements that become untrue because of subsequent events, new informa,on or otherwise.
P
OWER
REIT A
T
A G
LANCE
Exci&ng Story with Mul&ple Drivers of Value and Growth
•
Power REIT is a real estate investment trust focused on infrastructure assets
•
As of this presenta&on, Power REIT owns and leases through its subsidiaries:
–
112 miles of railroad located in Marcellus Shale territory (Pennsylvania, West Virginia and Ohio)
–
Over 150 acres of land leased to over 25MW of u,lity scale opera,ng and in construc,on solar farms
•
Two paths to create shareholder value:
–
Near to Medium Term:
Upside from P&WV subsidiary li,ga,on with Norfolk Southern
–
Near to Long Term:
Accre,ve acquisi,ons with yields > Power REIT long-‐term cost of capital
I
NFRASTRUCTURE
F
OCUS
•
Renewable Energy
–
Solar Farms
–
Wind Farms
–
Other Renewables
•
Transporta&on
–
Railroads, ports, etc.
•
Opportunis&c
Infrastructure Assets
•
Hydro, Geothermal,
Transmission, etc.
•
Loca&on, loca&on, loca&on
•
Long-‐life assets that are
complicated to develop, permit
•
Hard to replace and/or relocate
–
i.e. cap,ve tenants
•
Predictable cash flows
•
Minimal technology risk
R
EAL
E
STATE
I
NFRASTRUCTURE
R
ENEWABLE
E
NERGY
O
PPORTUNITY
5
Solar Opportunity
1
–
U.S. Installa,ons: 3.3GW (2012) and 4.3GW (2013E)
–
$10+ billion of solar investments annually in U.S.
Wind Opportunity
1
–
60+ GW of installed U.S. capacity as of Dec 2012
–
Over $100 billion of cumula,ve investment in U.S.
Other Renewable Opportuni&es
–
Hydro
–
Geothermal
–
Transmission
ATrac&ve Near-‐term Opportuni&es within Renewable Energy
S
OLAR
L
AND
A
CQUISITION
– D
ECEMBER
2012
•
Approximately $1.0 million acquisi&on price with
a recent appraisal of $1.3 million
•
54 acres in Salisbury, MA
–
Formerly zoned as an industrial park
–
Located near I-‐495 and I-‐95 intersec,on
•
Leased to largest solar farm in New England
–
5.7MW-‐DC project
–
Over 25,000 solar panels
–
Power sold to investment grade municipali,es
–
Tenant sponsored by large private equity fund with
over $250mm of solar assets
–
20+ year lease
7
Approx. 6MW of solar land located near Boston, MA
Boston
Portland
44 miles
70 miles
S
OLAR
L
AND
A
CQUISITION
– J
ULY
2013
Approx. 20MW of solar land located near Fresno, California
•
Approx. $1.55 million to acquire 100 acres leased to u&lity scale solar projects
•
Revenue of $157,500 per annum pursuant to leases with a 25 year ini&al term
–
Revenue starts upon construc,on comple,on / commercial opera,ons (targeted early 2014)
–
Real-‐estate tax liability capped at approx. $26,500 (tenant responsible for any increase)
–
Interim lease payments from developer commenced October 1, 2013
•
High quality private equity sponsor
•
Long-‐term power purchase agreements with
–
Southern California Edison (SCE)
–
Pacific Gas & Electric (PG&E)
•
Expected to generate mid-‐teens equity returns
–
Ini,ally 100% financed with acquisi,on bridge loan in order to close transac,on
–
Expected to be re-‐financed with equity and long-‐term debt
S
MALL
C
APITALIZATION
I
NCREASES
A
RBITRAGE
Significant opportunity to grow future dividends
per share through accre&ve acquisi&ons
9
C
OMPANY
S
IZE
C
ASH
F
LOW
P
ER
S
HARE
Mid-‐sized
REIT
Pre-‐Transac,on
Pro-‐Forma Mid-‐sized
Impact of a similar
sized acquisi&on
POWER
REIT
Pro-‐Forma
Power REIT
P&WV S
UBSIDIARY
•
Power REIT’s wholly-‐owned subsidiary, PiTsburgh & West Virginia Railroad
(“P&WV”), owns 112 miles of railroad track and related real estate
–
Hard-‐to-‐replace railroad right of way in Western Pennsylvania and Eastern Ohio
–
Significant rail volume growth related to Marcellus Shale ac,vity
–
Oil and gas development on P&WV’s property
•
P&WV has leased its railroad property to Norfolk Southern Corpora&on (“NSC”)
pursuant to a 99-‐year lease (the “Lease”)
–
Lease went into effect in 1964
–
NSC has unlimited renewal op,ons on the same terms (absent breach by NSC)
–
NSC has sub-‐leased P&WV’s property to Wheeling & Lake Erie Railway (“WLE”)
•
NSC is currently paying base cash rent of $915,000 per annum on a quarterly
basis and is responsible for all opera&ng costs
–
NSC has historically “paid” addi,onal cash rent in the form of “debt” totaling approximately $17
million based on NSC’s records
–
P&WV believes amounts owed to P&WV are significantly higher and is seeking payment
•
P&WV is currently in li&ga&on with NSC and WLE to enforce its rights under the
lease and protect its property rights
P
OSSIBLE
R
ANGE
OF
L
ITIGATION
O
UTCOMES
11
Power REIT’s wholly-‐owned subsidiary, P&WV has mul&ple claims against NSC
1“Win”
“Lose”
Indebtedness Owed By NSC
216,600,000+
0
Undisclosed Oil and Gas / Other Leases
38,000,000+
0
Interest on Indebtedness
???
0
Addi,onal Rent Correc,ons
???
0
Li,ga,on Costs
4???
???
Higher Lease Rate aver Default/Re-‐Lease
5???
0
Value of NOL if Writen Off
6n/a
5,810,000+
Total Value
24,600,000+/-‐
???
Per Share Value
7
$13.30 +/-‐
???
Upside to Current Share Price
7
>175%
???
1.
This chart is based on management assump,ons. There can be no assurance that P&WV will prevail in its counterclaims or
achieve the outcomes presented in this chart. The chart is intended to only provide a road map to understanding elements of
P&WV’s claims. Investors should not place undue reliance on projec,ons of future outcomes. See Power REIT’s SEC filings
for addi,onal risks and disclosure related to the li,ga,on.
2.
As reported by NSC at the end of 12/31/2012.
3.
P&WV has supplemented its counterclaims to seek recovery rela,ng to previously undisclosed oil and gas and other leases
entered into by NSC and/or WLE related to P&WV property.
4.
Through Q3 2013, P&WV has spent approx. $1.4 million on the li,ga,on, costs which it believes are reimbursable under the
lease. P&WV believes its worst case exposure is li,ga,on costs, offset by value of NOL if the indebtedness is writen off.
5.
If P&WV succeeds in declaring a default, the railroad may be re-‐leased at higher rates.
6.
Assumed valued of 35% of P&WV current tax basis of $16.6 million.
L
ITIGATION
S
TATUS
•
P&WV feels strongly about the merits of its case
–
The li,ga,on is designed to protect P&WV’s rights under the Lease and to its property
–
Confident that pursuing the li,ga,on is in the best interest of P&WV
•
P&WV has spent approximately $1.4 million through the third quarter of 2013 on
the li&ga&on, however, management believes P&WV’s li&ga&on expenses are
reimbursable by NSC pursuant to Lease provisions
•
Shareholders are encouraged to read the case docket
–
Case is pending in the Federal District Court in Pitsburgh
–
Docket is publicly available on PACER
–
Key documents available at
www.pwreit.com
under Shareholder Presenta,ons
•
Li&ga&on Risks:
–
Li,ga,on is inherently unpredictable, lengthy and expensive
–
Shareholders are encouraged to review risk factors that have been disclosed on the company’s
annual reports filed on Form 10-‐K, quarterly reports filed on Form 10-‐Q and other filings with the SEC
M
ANAGEMENT
Thought leadership within infrastructure
REIT & renewable energy sector
13
Knowledge-‐
Driven Business
Plan
Aligned
Interests
Track Record
of Execu&on
C
ORPORATE
S
TRUCTURE
AND
P
OWER
REIT C
ORPORATE
S
TRUCTURE
•
Power REIT is structured as a holding company and owns all of its leased assets
through three wholly-‐owned subsidiaries
15
POWER REIT
Maryland real estate investment trust
Listed on NYSE MKT (,cker PW)
PiTsburgh & West Virginia
Railroad (“P&WV”)
PA business trust
PW Salisbury Solar LLC
MA limited liability company
CA limited liability company
PW Tulare Solar LLC
• Fee ownership of land, track and other assets comprising 112 miles of railroad located in PA, WV and OH, leased to Norfolk Southern
Corpora,on
• $915,000 of annual rent • P&WV is seeking payment of
$16.6 million indebtedness and other amounts from NSC in current li,ga,on
• Fee ownership of 54 acres leased to a opera,ng 5.7MW solar farm located near Boston, MA
• $80,800 of annual rent, with a 1% escala,on per annum
• Fee ownership of 100 acres leased to ~22MW of in construc,on solar farms located in Tulare County; opera,ons expected to commence January 2014 • $157,500 of annual rent
Over 2,000 Public
Shareholders
P
OWER
REIT C
ONSOLIDATED
N
ET
A
SSET
V
ALUE
(NAV)
HIGHLIGHTS
•
Power REIT trades at a 57%
discount to “Adjusted NAV” of
$35.1 million (including the $16.6
million indebtedness owed to
P&WV by NSC*)
•
Balance sheet is underleveraged
providing opportuni,es for
growth
* P&WV is currently in li,ga,on with Norfolk Southern Corpora,on (NSC) to collect on the indebtedness and
P
OWER
REIT C
ONSOLIDATED
N
ET
A
SSET
V
ALUE
(NAV)
(
CONTINUED
)
Footnotes to previous slide
a) Management has adjusted certain of its reported GAAP asset values as described in footnotes (c), (d) and (e). b) Based on a fully diluted share count of 1,842,955 as of 12/2/2013 (including all vested and unvested equity grants).
c) Under the Lease, P&WV receives $915,000 in base rent from NSC each year, in exchange for giving NSC almost complete control of the leased assets for at least 99 years. In recent decades, the leased assets have been valued in P&WV’s balance sheet at $9,150,000. Management believes that the value of the assets can also be expressed as the present value of NSC’s future lease payments, discounted at the rate at which NSC issues its long-‐term debt. Hence, management has used a 5% discount rate (as compared to NSC’s unsecured long-‐term debt of approximately 3-‐5%) to the remaining lease cash-‐flows, resul,ng in a value of $18,300,000.
d) P&WV is currently in li,ga,on with NSC to collect on the indebtedness and other amounts. See slides 10-‐12 describing the li,ga,on. The amount used here is the amount provided to P&WV by NSC and included on P&WV’s tax books as an asset. P&WV believes the amount is understated. In all events however, li,ga,on is lengthy and li,ga,on outcomes are uncertain. Investors should not place undue reliance on projec,ons of possible future outcomes.
e) During the third quarter of 2013, PW Salisbury received an appraisal for its land of $1.3 million. f) Miscellaneous assets includes prepaid and capitalized expenses.
g) Long-‐term debt of $862k is a result of the PW Salisbury land acquisi,on and includes $115k of municipal debt assumed as part of transac,on. h) Long-‐term debt, related party, was borrowed from an affiliate of our Chairman and CEO for PW Tulare Solar land acquisi,on and which is
expected to be refinanced with permanent debt from an unrelated third party. i) Miscellaneous liabili,es include deferred rent and accrued interest.
j) Net Asset Value (“NAV”) and Adjusted NAV are calculated as total assets minus total liabili,es, using the reported GAAP amounts and the adjusted non-‐GAAP amounts set forth on slide 16, respec,vely. The adjustments made to certain of the asset values used in calcula,ng Adjusted NAV are described in footnotes (c), (d) and (e). NAV and Adjusted NAV are non-‐GAAP financial measures. See Appendix for disclosure regarding non-‐GAAP financial measures.
k) Calculated based on fully diluted share count of 1,842,955 and a closing share price of $8.18 as of 12/2/2013.
17
C
APITAL
P
LAN
•
Power REIT is seeking to limit near-‐term dilu&on to help maximize shareholder
rewards from P&WV li&ga&on
–
Minimize issuance of common stock at current prices
–
U,lize non-‐dilu,ve capital (debt, bridge financing, preferred equity, JV capital) to fund acquisi,ons
–
Fund li,ga,on expenses through temporary suspension of dividend
•
Power REIT has filed a prospectus to issue Series A Preferred Stock
–
Projected use of proceeds includes addi,onal accre,ve acquisi,ons
•
Expect to resume
common
dividends as li&ga&on expenses decline
–
Historical dividend rate at $0.10 / quarter (prior to li,ga,on)
18
POWER REIT’S ACCESS TO NON DILUTIVE CAPITAL
High Quality Assets With
Long-‐term Predictable
H
YPOTHETICAL
A
CQUISITION
F
UNDED
WITH
P
REFERRED
E
QUITY
AND
D
EBT
19
1. Hypothe,cal economics are illustra,ve only and actual results may vary.
2. Core Funds From Opera,ons (Core FFO) is a non-‐GAAP financial measure and is equal to opera,ng results aver distribu,ons to preferred stock, but before li,ga,on expenses, non-‐cash equity compensa,on expenses and one-‐,me upfront property acquisi,on expenses (which are expensed pursuant to ASC-‐805, rather than capitalized). See Appendix for disclosure regarding non-‐GAAP financial measures.
ASSUMPTION
$10mm
Acquisi,on with
a 8.0%
Net Yield
ASSUMPTION
Incur $7mm of
Debt with 5.25%
Cost of Funds
Issue $3mm of
Preferred Equity
at 7.75%
RESULT
~$200,000 increase in
Core FFO
2Available
to Common Shares
H
YPOTHETICAL
A
CQUISITION
– P
RO
F
ORMA
A
CCRETION
TO
C
ORE
FFO
20
1. Revenues and expenses are from Power REIT’s consolidated results for the twelve-‐months ended September 30, 2013.
2. Pro-‐forma results are for illustra,ve purposes only and are based on a hypothe,cal $10mm acquisi,on; actual results, including, but not limited to, size and ,ming of investment(s), investment yields and cost of debt, may vary.
3. Hypothe,cal Acquisi,on: $10mm investment at a 8% net yield = $800k of revenue per annum
4. Cash G&A does not include li,ga,on expenses, non-‐cash equity compensa,on expenses and one-‐,me upfront acquisi,on expenses. See Appendix for reconcilia,on of Core FFO to Net Income under GAAP.
5. Debt of $7mm at 5.25% = $368k addi,onal interest expense per annum
6. Issue $3mm preferred stock at a yield of 7.75% = $232k of dividends paid per annum
7. Core FFO is a non-‐GAAP financial measure. See Appendix for disclosure regarding non-‐GAAP financial measures.
8. $200k is the projected addi,onal Core FFO available to common shares based on the hypothe,cal $10mm acquisi,on; actual results
Management believes Core FFO reflects the
H
YPOTHETICAL
A
CQUISITION
– P
RO
F
ORMA
C
APITAL
S
TRUCTURE
21
Pro forma capital structure is based on the hypothe,cal acquisi,on described on slide 19 and is illustra,ve only. Actual results may vary. Adjusted Capitaliza,on and Adjusted NAV are non-‐GAAP financial measures. See Appendix for disclosure regarding non-‐GAAP financial measures.
C
ONCLUSION
: A
TTRACTIVE
R
ISK
A
DJUSTED
R
ETURN
WITH
E
VENT
D
RIVEN
U
PSIDE
A
PPENDIX
– D
ISCLOSURE
R
EGARDING
N
ON
-‐GAAP F
INANCIAL
M
EASURES
This presenta,on contains supplemental financial measures that are not calculated pursuant to U.S. generally accepted accoun,ng principles ("GAAP"), including the measures iden,fied by us as Net Asset Value (“NAV”), Adjusted NAV, Core Funds From Opera,ons (“Core FFO”) and Adjusted Capitaliza,on. Further details regarding Power REIT's consolidated results of opera,ons and financial condi,on are contained in the Company’s reports filed with the SEC, including its quarterly and annual reports filed on Form 10-‐K and 10-‐Q, which can be viewed at the Company's website at www.pwreit.com under the Investor Rela,ons sec,on and on the SEC’s website at www.sec.gov. Following are defini,ons of these supplemental measures, explana,ons as to why we present them and reconcilia,ons of them to the most directly comparable GAAP financial measures, if available.
Core Funds from Opera&ons (“Core FFO”)
Management believes that Core FFO is a useful supplemental measure of the Company's opera,ng performance. Management believes that alterna,ve measures of performance, such as net income computed under GAAP, or Funds From Opera,ons computed in accordance with the defini,on used by the Na,onal Associa,on of Real Estate Investment Trusts (“NAREIT”), include certain financial items that are not indica,ve of the results provided by the Company's asset por•olio and inappropriately affect the comparability of the Company's period-‐over-‐period performance. These items include non-‐ recurring expenses, such as those incurred in connec,on with li,ga,on, one-‐,me upfront acquisi,on expenses that are not capitalized under ASC-‐805, and certain non-‐cash expenses, including non-‐cash equity compensa,on expense. Therefore, management uses Core FFO and defines it as net income excluding such items. Management believes that, for the foregoing reasons, these adjustments to net income are appropriate. The Company believes that Core FFO is a useful supplemental measure for the inves,ng community to employ in comparing the Company to other REITs, as many REITs provide some form of adjusted or modified FFO, and in analyzing changes in the Company’s performance over ,me. Readers are cau,oned that other REITs may use different adjustments to their GAAP financial measures, and that as a result the Company's Core FFO may not be comparable to the FFO measures used by other REITs or to other non-‐GAAP or GAAP financial measures used by REITs or other companies.
Net Asset Value (“NAV”), Adjusted NAV and Adjusted Capitaliza&on
NAV and Adjusted NAV are calculated as total assets minus total liabili,es, using the reported GAAP amounts and the adjusted non-‐GAAP amounts set forth on slide 16, respec,vely. The adjustments made to certain of the asset values used in calcula,ng Adjusted NAV are described in footnotes (c), (d) and (e) on slide 17. Adjusted Capitaliza,on is Adjusted NAV + total liabili,es. “Fair market value” is a subjec,ve es,mate of valua,on prepared by management and is not the same as the carrying values on the company’s consolidated balance sheet prepared under GAAP. The terms NAV, Adjusted NAV and Adjusted Capitaliza,on do not have any standardized meaning according to GAAP and therefore may not be comparable to similar measures presented by other companies. There are no comparable GAAP measures presented in Power REIT’s consolidated financial statements and thus no applicable quan,ta,ve reconcilia,on for such non-‐GAAP financial measures can be or is supplied. Management believes that NAV, Adjusted NAV and Adjusted Capitaliza,on can provide informa,on useful to shareholders in understanding the Company’s performance and valua,on, and may assist in the evalua,on of its business rela,ve to that of its peers. However, readers are cau,oned that other REITs may use different measures and that as a result Power REIT’s measures may not be comparable to GAAP or non-‐GAAP financial measures used by other REITs or other companies. NAV, Adjusted NAV and Adjusted Capitaliza,on are calculated as of a par,cular date and may not be reflec,ve of Power REIT’s future business performance, values that could be realized in a sale or sales or future trading prices.