UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31,June 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to__________

001-36312

(Commission file number)File Number)

POWER REIT

(Exact name of registrant as specified in its charter)

(212) 750-0371

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

3,389,661 common shares, $0.001 par value, outstanding at May 15,August 14, 2023.

TABLE OF CONTENTS

POWER REIT AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

POWER REIT AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

POWER REIT AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Quarters Ended March 31,June 30, 2023 and 2022

(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

POWER REIT AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Notes to Unaudited Consolidated Financial Statements

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 ourthe Trust’s audited consolidated financial statements and notes included in ourthe Trust’s latest Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 31, 2023.

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 March 31,June 30, 2023, 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 501 acres of fee simple land leased to a number of utility scale solar power generating projects with an aggregate generating capacity of approximately 88 Megawatts (“MW”) and approximately 263 acres of land with approximately 2,211,000 square feet of existing or under construction CEA properties in the form of greenhouses.

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 iswas 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.

During the threesix months ended March 31,June 30, 2023, the Trust accrued a quarterly dividend of approximately $163,000326,000 ($0.484375 per share per quarter) on Power REIT’s 7.75% Series A Cumulative Redeemable Perpetual Preferred Stock.

The Trust has elected to be treated for tax purposes as a REIT, which means that it is exempt from U.S. federal income tax if a sufficient portion of its annual income is distributed to its shareholders, and if certain other requirements are met. In order for the Trust to maintain its REIT qualification, at least 90% of its ordinary taxable annual income must be distributed to shareholders. As of December 31, 2021, the last tax return completed to date, the Trust has a net operating loss of $24.8 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 Debt Facility. See Note 56 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 FLOWS

Basis of Presentation

These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

Principles of Consolidation

The accompanying consolidated financial statements include Power REIT and its wholly-owned subsidiaries. All intercompany balances have been eliminated in consolidation.

Income (Loss) per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted net income (loss) per common share is computed similar to basic net income (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.

The following table sets forth the computation of basic and diluted Income (loss) per share:

SCHEDULE OF COMPUTATION OF BASIC AND DILUTED INCOME PER COMMON 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 threesix months ended March 31,June 30, 2022, the Trust acquired one property and the acquisition is accounted for as an asset acquisition. There were no acquisitions during the threesix months ended March 31,June 30, 2023. In making estimates of relative fair values for purposes of allocating purchase price, the Trust utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, its own analysis of recently acquired and existing comparable properties in our portfolio and other market data. The Trust also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the relative fair value of the tangible acquired. The Trust allocates the purchase price of acquired real estate to various components as follows:

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 each of the threesix months ended March 31,June 30, 2023 and 2022, approximately $604,7001,209,000 and $288,500677,000 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 March 31,June 30, 2023 and December 31, 2022, the Trust has three properties that are considered assets held for sale. See Note 67 for discussion of ourthe 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, wethe 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 ourthe 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.

Assessment of ourthe Trust’s ability to recover certain lease related costs must be made when we haveit has a reason to believe that the tenant might not be able to perform under the terms of the lease as originally expected. This requires us to make estimates as to the recoverability of such costs. There is no impairment of long-lived assets during the threesix months ended March 31,June 30, 2023 and 2022.

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 threesix months ended March 31,June 30, 2023 and 2022, the Trust wrote off a net amount of approximately $0315,000 (which resulted in negative rental income for the three months ended June 30, 2023) and $218,000302,000, respectively, in straight-line rent receivable against rental income based on its current assessment of collecting all remaining contractual rent on the 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.

Intangibles

A portion of the acquisition price of the assets acquired by PW Tulare Solar, LLC (“PWTS”) have been allocated on the Trust’s consolidated balance sheets between Land and Intangibles fair values at the date of acquisition. The total amount of in-place lease intangible assets established was approximately $237,000, which was being amortized over a 24.6-year period prior to its sale during the first quarter of 2023. For each of the threesix months ended March 31,June 30, 2023 and 2022, approximately $0 and $2,4004,800 of the intangibles were amortized.

A portion of the acquisition price of the assets acquired by PW Regulus Solar, LLC (“PWRS”) have been allocated on The Trust’s consolidated balance sheets between Land and Intangibles’ fair values at the date of acquisition. The total amount of in-place lease intangible assets established was approximately $4,714,000, which is amortized over a 20.7-year period. For each of the threesix months ended March 31,June 30, 2023 and 2022, approximately $56,900113,700 of the intangibles was amortized.

A portion of the acquisition price of the assets acquired by PW CA Canndescent, LLC (“PW Canndescent”) have been allocated on Thethe Trust’s consolidated balance sheets between Land, Improvements and Intangibles, fair values at the date of acquisition. The amount of in-place lease intangible assets established was approximately $808,000, which was to be amortized over a 4.5-year period. For the threesix months ended March 31,June 30, 2023 and 2022, approximately $0 and $44,90089,800 of amortization expense was recognized. A below-market lease intangible liability was recorded upon acquisition in the amount of approximately $179,000 and was to be amortized over a 4.5-year period. Addition to revenue for the amortization of the liability in the amount of approximately $0 and $9,90019,900 was recognized for the threesix months ended March 31,June 30, 2023, and 2022, respectively. The lease intangibles for PW Canndescent were fully impaired during the last quarter of 2022 based upon tenant default.

Intangible assets are evaluated whenever events or circumstances indicate the carrying value of these assets may not be recoverable. There were no impairment charges recorded for the threesix months ended March 31,June 30, 2023, and 2022.

The following table provides a summary of the Intangible Assets and Liabilities:

SCHEDULE OF 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:

SCHEDULE OF FUTURE AMORTIZATION OF INTANGIBLE ASSETS

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 1010%%.

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 March 31,June 30, 2023 and December 31, 2022.

Other Income

Other income for the six months ended June 30, 2023 and 2022 is $140,823 and $19, respectively which consists of interest income and forgiveness of accounts payable.

3 – GOING CONCERN

The Trust’s objectives when managing its capital are 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. OurThe Trust’s management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about ourits ability to continue as a going concern within one year after the date that the financial statements are issued.

For the quartersix months ended March 31,June 30, 2023, the Trust determined that there was substantial doubt as to its ability to continue as a going concern as a result of net losses incurred, expected reduced revenue and increased property maintenance expenses. As of March 31,June 30, 2023, the Trust had approximately $4.33.3 million of non-restricted cash available and with the potential sale of certain assets, we believethe Trust believes these resources will be sufficient to fund ourits operations and commitments. The focus on selling properties, the potential to enter into new leases and improve collections from existing tenants and the potential to raise capital in the form of debt or equity, should alleviate the substantial doubt about the Trust’s ability to continue as a going concern. However, wethe Trust cannot predict, with certainty, the outcome of ourits actions to generate liquidity and the failure to do so could negatively impact ourits future operations.

4 – ACQUISITION AND DISPOSITION

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 recognized a gain on sale of approximately $1,040,000.

SCHEDULE OF FAIR VALUE OF ASSETS DISPOSITION

2022 Acquisitions

On March 31, 2022, Power REIT completed its first acquisition with the focus of cultivation of food crops, through a newly formed wholly owned indirect subsidiary, PW MillPro NE LLC, (“PW MillPro”), and acquired a 1,121,513 square foot greenhouse cultivation facility (the “MillPro Facility”) on an approximately 86-acre property and a separate approximately 4.88-acre property with a 21-room employee housing building (the “Housing Facility”) for $9,350,000 and closing costs of approximately $91,000 located in O’Neill, Nebraska. As part of the transaction, the Trust agreed to fund $534,430 to upgrade the facility but as of December 31, 2022,June 30, 2023, $0 construction in progress has been funded, and the tenant has ceased operations at the property.

The following table summarizes the preliminary allocation of the purchase consideration for the PW MillPro properties based on the relative fair values of the assets when acquired:

SCHEDULE OF FAIR VALUE OF ASSETS ACQUIRED 

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 threesix months ended March 31,June 30, 2023 and 2022, the Trust wrote off a net amount of $0 and approximately $218,000315,000 (which resulted in negative rental income for the three months ended June 30, 2023) and $302,000, respectively, in straight-line rent receivable against rental income. Total revenue from its leases recognized for the threesix months ended March 31,June 30, 2023 and 2022 is approximately $923,0001,082,000 and $1,986,0004,218,000, respectively.

Due to significant price compression in the wholesale cannabis market, many of ourthe Trust’s cannabis related tenants are currently experiencing financial challenges including an inability to pay rent. The Trust has offered certain of its cannabis tenants’ relief by amending leases whereby monthly cash payments are restructured over the course of the lease to lower near term rent payments and increase rent payments in the future.

Historically, the Trust’s revenue has been concentrated to a relatively limited number of investments, industries and lessees. During the threesix months ended March 31,June 30, 2023, Power REIT collected approximately 9289%% of its consolidated revenue from three properties. The tenants were Norfolk Southern Railway, Regulus Solar, LLC and NorthEast Kind Assets, LLC (“Sweet Dirt”), Norfolk Southern Railway, and Regulus Solar, LLC which represent 4642%%, 2537%% and 2110%% of consolidated revenue respectively. Comparatively, during the threesix months ended March 31,June 30, 2022, Power REIT collected approximately 6665%% of its consolidated revenue from five properties. The tenants were Sweet Dirt, Fiore Management LLC (“Canndescent”), Norfolk Southern Railway Walsenburg Cannabis LLC and Regulus Solar, LLC which represent 1921%%, 1413%%, 1211%%, 11% and 1010%% of consolidated revenue respectively. The fifth is an aggregate of properties owned in whole or in part and guaranteed by one party through three separate LLC’s that represent 10% of consolidated revenue.

The following is a schedule by years of minimum future rentals on non-cancelable operating leases as of March 31,June 30, 2023 for assets and assets held for sale where revenue recognition is considered on a straight-line basis:

SCHEDULE OF MINIMUM FUTURE RENTALS ON NON- CANCELABLE OPERATION LEASES

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 has approximately 9 years remaining. The Municipal Debt has a simple interest rate of 5.05.0%% that is paid annually, due on February 1 of each year. The balance of the Municipal Debt as of March 31,June 30, 2023 and December 31, 2022 is approximately $51,000 and $58,000 respectively.

In July 2013, PWSS borrowed $750,000 from a regional bank (the “PWSS Term Loan”). The PWSS Term Loan carries a fixed interest rate of 5.05.0%% for a term of 10 years and amortizes based on a 20-year principal amortization schedule. The loan is secured by PWSS’ real estate assets and a parent guarantee from the Trust. The balance of the PWSS Term Loan as of March 31,June 30, 2023 and December 31, 2022 is approximately $482,000474,000 (net of approximately $7000 of capitalized debt costs) and $490,000 (net of approximately $1,400 of capitalized debt costs), respectively.

On November 6, 2015, PWRS entered into a loan agreement (the “2015 PWRS Loan Agreement”) with a certain lender for $10,150,000 (the “2015 PWRS Loan”). The 2015 PWRS Loan is secured by land and intangibles owned by PWRS. PWRS issued a note to the benefit of the lender dated November 6, 2015 with a maturity date of October 14, 2034 and a 4.344.34%% interest rate. The 2015 PWRS Loan is non-recourse to Power REIT. As of March 31,June 30, 2023 and December 31, 2022, the balance of the 2015 PWRS Loan was approximately $7,386,0007,232,000 (net of unamortized debt costs of approximately $252,000247,000) and $7,393,000 (net of unamortized debt costs of approximately $258,000), respectively.

On November 25, 2019, Power REIT, through a newly formed subsidiary, PW PWV Holdings LLC (“PW PWV”), entered into a loan agreement (the “PW PWV Loan Agreement”) with a certain lender for $15,500,000 (the “PW PWV Loan”). The PW PWV Loan is secured by pledge of PW PWV’s equity interest in P&WV, its interest in the Railroad Lease and a security interest in a deposit account (the “Deposit Account”) pursuant to a Deposit Account Control Agreement dated November 25, 2019 into which the P&WV rental proceeds isare 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 4.624.62%% and fully amortizes over the life of the financing which matures in 2054 (35 years). The PW PWV Loan is non-recourse to Power REIT. The balance of the loan as of March 31,June 30, 2023 and December 31, 2022 is $14,565,00014,515,000 (net of approximately $282,000280,000 of capitalized debt costs) and $14,615,000 (net of approximately $285,000 of capitalized debt costs).

On December 21, 2021, Power REIT entered into a debt facility with initial availability of $20 million (the “Debt Facility”). The facility is non-recourse to Power REIT and is structured without initial collateral but has springing liens to provide security against a significant number of Power REIT CEA portfolio properties in the event of default. The Debt Facility hashad a 12 month draw period and then converts to a term loan that is fully amortizing over five years.years. The interest rate on the Debt Facility was 5.525.52%% and throughout the term of the loan, a debt service coverage ratio of equal to or greater than 2.00 to 1.00 must be maintained. On October 28, 2022, the terms of the Debt Facility 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 the Debt Facility entered into an additional modification of which the terms are summarized as follows:

As of March 31,June 30, 2023, $16,000,000 has been drawn against this Debt Facility. Debt issuance expenses of approximately $0and $44,000have been capitalized during the threesix months ended March 31,June 30, 2023 and 2022, respectively. Amortization of approximately $13,000 25,900and $13,400 26,700has been recognized for the threesix months ended March 31,June 30, 2023 and 2022, respectively and approximately $46,000deferred debt issuance costs were re-classed as contra liability upon the loan commitment reduction for the threesix months ended March 31,June 30, 2023; approximately $176,000deferred debt issuance costs were re-classed as contra liability upon the loan draw for the threesix months ended March 31,June 30, 2022. The balance of the loan as of March 31,June 30, 2023 and December 31, 2022 is approximately $15,755,000 15,768,000(net (net of approximately $245,000 232,000of unamortized debt costs) and approximately $15,735,000(net (net of approximately $265,000of unamortized debt costs). During the threesix months ended March 31,June 30, 2023, the Trust also recognized $160,000 loan modification expense in connection with the March 13, 2023 modification.

The Trust is in compliance of all loan covenants as of March 31,June 30, 2023.

The amount of principal payments remaining on Power REIT’s long-term debt as of March 31,June 30, 2023 including the modified repayment schedule for the Debt Facility is as follows:

SCHEDULE OF LONG TERM DEBT

7 – ASSET HELD FOR SALE

The Trust has aggregated and classified the assets and liabilities of three properties (Canndescent, Walsenburg and Sweet Dirt) as held for sale in our the Trust’s Consolidated Balance Sheets as of March 31,June 30, 2023 and December 31, 2022. The assets and liabilities of assets held for sale were as follows:

SCHEDULE OF ASSETS AND LIABILITIES OF ASSETS HELD FOR SALE

On January 27, 2023, PW SD and Sweet Dirt entered into a Purchase and Sale Agreement (the “PSA”) to sell the property leased to Sweet Dirt for total consideration of $7,037,000 which has not closed as of March 31, 2023 which was the deadline.. On March 31, 2023, the Sweet Dirt lease was amended to restructure the timing of rent payments but maintain the same overall yield. On March 31, 2023, the Purchase and Sale Agreement was amended to allow for a 60-day extension for closing andas well as an option to extend the purchaserclosing for an additional 21 days. As part of the amendment, Sweet Dirt provided a $300,000 non-refundable deposit.deposit to the escrow agent. Sweet Dirt is currently in default with respect to the PSA for failure to close by June 21, 2023 which was the deadline based on Sweet Dirt’s exercise of the option to extend the closing deadline as well as for the failure to provide an additional non-refundable deposit that was required for the option to extend the closing date. In addition, Sweet Dirt is in default on its lease for failure to pay rent for May, June, July of 2023. As of the filing, PW SD and Sweet Dirt are in ongoing discussions related to a path forward. There can be no assurance as to when or if the sale will close.

8 – EQUITY AND LONG-TERM COMPENSATION

Summary of Stock Based Compensation Activity

Power REIT’s 2020 Equity Incentive Plan (the “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 Stockstock through the granting of awards. As of March 31,June 30, 2023, the aggregate number of shares of Common Stockcommon stock that may be issued pursuant to outstanding awards is currently 150,917 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 ourits 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:

SCHEDULE OF STOCK BASED COMPENSATION VALUATION ASSUMPTION OF ACTIVITY OPTIONS

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.

The summary of stock-based compensation activity for the threesix months ended March 31,June 30, 2023, with respect to the Trust’s stock options, is as follows:

Summary of Activity –- Options

SCHEDULE OF SHARE BASED COMPENSATION STOCK OPTION ACTIVITY

The weighted average remaining term of the options is 9.299.04 years.

Summary of Stock Based Compensation Activity – Restricted Stock

On July 15, 2022, the Trust granted 22,400 shares of restricted stock to its officer (20,000 shares) and independent trustees (600 shares each). The restricted stock vests over 36 months for the officer and quarterly over four quarters for the trustees and is valued based on the market price of the common stock on the grant date.

The summary of stock-based compensation activity for the threesix months ended March 31,June 30, 2023, with respect to the Trust’s restricted stock, was as follows:

Summary of Activity –- Restricted Stock

SCHEDULE OF SHARE BASED COMPENSATION RESTRICTED STOCK UNITS AWARD ACTIVITY

Stock-based Compensation

During the threesix months ended March 31,June 30, 2023, the Trust recorded approximately $94,800190,000 of non-cash expense related to restricted stock and approximately $132,000263,000 of non-cash expense related to options granted compared to approximately $109,000218,000 of non-cash expense related to restricted stock for the threesix months ended March 31,June 30, 2022. As of March 31,June 30, 2023, there was approximately $515,000420,000 of total unrecognized share-based compensation expense for restricted stock and approximately $1,224,0001,088,000 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 Dividends

During the threesix months ended March 31,June 30, 2023, the Trust accrued a total of approximately $163,000326,000 of dividends to holders of Power REIT’s Series A Preferred Stock.

9 – RELATED PARTY TRANSACTIONS

A wholly-owned subsidiary of Hudson Bay Partners, LP (“HBP”), an entity associated with ourthe Trust’s CEO and Chairman of the Trust, David Lesser, provided the Trust and its subsidiaries with office space at no cost. Effective September 2016, the Board of Trustees approved reimbursing an affiliate of HBP $1,000 per month for administrative and accounting support based on a conclusion that it would pay more for such support from a third party. The amount paid haswas increased over time with the approval of the independent members of the Board of Trustees. Effective February 23, 2021, the monthly amount paid to the affiliate of HBP increased to $4,000. A total of only $8,000 was paid pursuant to this arrangement during the first quartersix months ended March 31,June 30, 2022 compared to $0 paid during the first quartersix months ended March 31,June 30, 2023. During the first quarter of 2022, the Trust eliminated this recurring related party transaction and implemented payroll through Power REIT.

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 March 31,June 30, 2023, these properties are currently not operational and the Trust is evaluating alternatives related thereto. Total rental income recognized for the threesix months ended March 31,June 30, 2023 from the tenants that are affiliated with MILC in Colorado, Oklahoma, Michigan and Nebraska was $0compared to total rental income recognized for the threesix months ended March 31,June 30, 2022 from the affiliated tenants in Colorado, Oklahoma, Michigan and Nebraska of $212,376242,785, $125,640125,695, $0and $0 274,846respectively.

Effective March 1, 2022, the Sweet Dirt Lease was amended (the “Sweet Dirt Lease Second Amendment”) to provide funding in the amount of $3,508,000to add additional items to the property improvement budget for the construction of a Cogeneration / Absorption Chiller project to the Sweet Dirt Property. A portion of the property improvement budget, amounting to $2,205,000, will be supplied by IntelliGen Power Systems LLC (“IntelliGen”) which is owned by Hudson Bay Partners, LLC, an affiliate of David Lesser, Power REIT’s Chairman and CEO. On January 23, 2023, the Sweet Dirt lease was amended to restructure the timing of rent payments but maintain the same overall yield and eliminate the funding of remaining capital improvements for the cogeneration project, which includes eliminating payments that were expected to be paid to Intelligen Power Systems, LLC,IntelliGen, a related party. As of March 31,June 30, 2023, $1,102,500had been paid to IntelliGen Power Systems LLC for equipment supplied.

Under the Trust’s Declaration of Trust, the Trust may enter into transactions in which trustees, officers or employees have a financial interest, provided however, that in the case of a material financial interest, the transaction is disclosed to the Board of Trustees or the transaction shall be fair and reasonable. After consideration of the terms and conditions of the transaction with Hudson Bay Partners, IntelliGen Power Systems 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 – CONTINGENCIES

The Trust’s wholly-owned subsidiary, P&WV, is subject to various restrictions imposed by the Railroad Lease with NSC, including restrictions on share and debt issuance, including guarantees.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” “plan,” “assume” or other similar expressions, or negatives of those expressions, although not all forward-looking statements contain these identifying words. All statements contained in this Report regarding our future strategy, future operations, projected financial position, estimated future revenues, projected costs, future prospects, the future of our industries and results that might be obtained by pursuing management’s current or future plans and objectives are forward-looking statements.

You should not place undue reliance on any forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control, including those identified below, under Part II, Item 1A. “Risk Factors” and elsewhere in this Report, and those identified under Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2022 that we filed with the Securities and Exchange Commission on March 31, 2023 (the “2022 10-K”). Our forward-looking statements are based on the information currently available to us and speak only as of the date of the filing of this Report. New risks and uncertainties arise from time to time, and it is impossible for us to predict these matters or how they may affect us. Over time, our actual results, performance, financial condition or achievements may differ from the anticipated results, performance, financial condition or achievements that are expressed or implied by our forward-looking statements, and such differences may be significant and materially adverse to our security holders. Our forward-looking statements contained herein speak only as of the date hereof, and we make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.

MANAGEMENT’S DISCUSSION AND ANALYSIS

We arePower 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.

We are structured as a holding company and owns our assets through twenty-fivetwenty-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 March 31,June 30, 2023, 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 501 acres of fee simple land leased to a number of utility scale solar power generating projects with an aggregate generating capacity of approximately 88 Megawatts (“MW”) and approximately 263 acres of land with approximately 2,211,000 square feet of existing or under construction CEA properties in the form of greenhouses.

During the threesix months ended March 31,June 30, 2023, the Trust accrued a quarterly dividend of approximately $163,000$326,000 ($0.484375 per share per quarter) on Power REIT’s 7.75% Series A Cumulative Redeemable Perpetual Preferred Stock.

Recent Developments

In 2019, we expanded the focus of our real estate activities to include CEA properties in the form of greenhouses in the United States. CEA is an innovative method of growing plants that involves creating optimized growing environments for a given crop indoors. Power REIT is focused on CEA in the form of a greenhouse which use approximately 70% less energy than indoor growing, 95% less water usage than outdoor growing, and does not have any agricultural runoff of fertilizers or pesticides. We believe greenhouse cultivation represents a sustainable solution from both a business and environmental perspective. Certain of our greenhouse properties are operated for the cultivation of cannabis by state-licensed operators. During 2022, we acquired a greenhouse focused on the cultivation of tomatoes. We typically enter into long-term “triple net” leases where our tenants are responsible for all costs related to the property, including insurance, taxes and maintenance.

Our primary objective is to maximize the long-term value of the Trust for our shareholders. To that end, our business goals are to obtain the best possible rental income at our properties in order to maximize our cash flows, net operating income, funds from operations, funds available for distribution to shareholders and other operating measures and results, and ultimately to maximize the values of our properties.

To achieve this primary goal, we have developed a business strategy focused on increasing the values of our properties, and ultimately of the Trust, which includes:

● Raising capital by monetizing the embedded value in our portfolio to enhance our liquidity position and, as appropriate reducing debt levels to strengthen our balance sheet;

● Selling off non-core properties and underperforming assets;

● Seeking to re-lease properties that are vacant or have non-performing tenants

● Raising the overall level of quality of our portfolio and of individual properties in our portfolio;

● Improving the operating results of our properties; and

● Taking steps to position the Company for future growth opportunities.

Improving Our Balance Sheet by Reducing Debt and Leverage; Maintaining Liquidity

Leverage

We continue to seek ways to reduce our leverage by improving our operating performance and through a variety of other means available to us. These means might include selling properties, raising capital or through other actions.

Liquidity

As of March 31,June 30, 2023, our consolidated balance sheet reflected $5.3$4.3 million of cash and cash equivalents which includes $1 million of restricted cash related to a credit facility. We believe that this amount and future net cash provided by operations, property sales, and other sources of capital, should provide sufficient liquidity to meet our liquidity requirements in the short term, including for one year from the filing of this Report.

Capital Recycling

In the later part of 2022, we commenced property reviews to establish a plan for the portfolio and, if appropriate, will seek to dispose of properties that we do not believe meet financial and strategic criteria given economic, market and other circumstances. Disposing of these properties can enable us to redeploy our capital to other uses, such as to repay debt, to reinvest in other real estate assets and development and redevelopment projects, and for other corporate purposes. Along these lines, in early 2023 we completed sales of assets for total gross proceeds of $2.5 million. We also have several properties that we are marketing for saleseeking to sell and/or lease which have been classified as “Assets Held for Sale.”

Improving Our Portfolio

We are currently seeking to refine our property holdings by selling properties and/or re-leasing them in an effort to improve the overall performance going forward.

Taking Steps to Position the Company for Future Growth Opportunities

We are taking steps designed to position the Trust to create shareholder value. In connection therewith, we have implemented processes designed to ensure strong internal discipline in the use, harvesting and recycling of our capital, and these processes will be applied in connection with seeking to reposition properties.

We may continue to seek to acquire, in an opportunistic, selective and disciplined manner, properties that have operating metrics that are better than or equal to our existing portfolio averages, and that we believe have strong potential for increasedto generate cash flows andflow and/or appreciation in value. Taking advantage of any acquisition opportunities would likely involve some use of debt or equity capital. We will pursue transactions that we expect can meet the financial and strategic criteria we apply, given economic, market and other circumstances. In addition, we are exploring the potential to use our existing corporate structure for strategic transactions including potentially merging assets or companies with the Trust.

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.

The following table is a summary of the Trust’s properties as of MayAugust 2023: