Power REIT: Why David Should Defeat Goliath

TM editors' note: This article discusses a microcap and/or penny stock. Such stocks are easily manipulated; do your own careful due diligence.

Power REIT (NYSE MKT:PW) is a nano-cap Real Estate Investment Trust with assets generating consistent, secure cash flow. Power REIT’s assets consist of long-term railroad infrastructure as well as 600 acres of land leased to solar farms. Power REIT’S current underlying value of $11.07 per share is delineated in a shareholder presentation on Power REIT’S Web-Site. This valuation does not factor in potential success in Power REIT’s pending Federal Appeal.

A recent article appearing in Value Investors Club lists Power REIT’s Net Asset Value at $10.62 per share plus a “lawsuit optionality value” of $1.09 or a total current valuation of $11.71 per share.The Value Investors Club analysis assumes a 15% probability of success in the appellate litigation.I believe this greatly under-estimates Power REIT's chance of success, and the company has a strong chance of prevailing on its appeal.The potential damage recoveries should it succeed are huge.


The Case

Power REIT has a CEO with vision, persistence and patience: David Lesser. Mr. Lesser has been involved for several years in pursuing Norfolk Southern on potential lease violations and defaults. The Power REIT/Pittsburgh & West Virginia Railroad (PWV) litigation with Norfolk/Wheeling has been going on for five years. The Appellant Brief (PW), the Appellee Brief (Norfolk/Wheeling), and Appellant Reply Brief (PW) have been filed with the Third Circuit Court of Appeals (Federal Court).

Power REIT’s appeal with Norfolk Southern and Wheeling & Lake Erie Railway (Case No 16-1195) is ripe for a decision. The case “will be submitted on the briefs” to an Appellate panel of three justices on Thursday, January 19, 2017. As is the norm in the vast majority of 3rd Circuit cases, “there will be no oral argument.” It is reasonable to believe that the appellate decision should be forthcoming during the First Quarter of 2017.

My summary of Power REIT’s position on the appeal follows. My primary source is Attorney Steven A. Hirsch ’s Amended Appellant Brief and Reply Brief.It is enlightening to review both of these in conjunction with the original lease document. Mr. Hirsch's background and the outstanding job he has done preparing the appeal both lead me to believe it has an excellent chance of success.


The Lease

My overall assessment is that the lease itself is the key to this case, and the lease is the “blueprint of the deal.” 

Power REIT’s subsidiary, Pittsburgh and West Virginia Railway (PWV), owns 111.21 miles of rail line going between Pennsylvania and Ohio. It also owns 5 short branch lines comprising an additional 20.38 miles.

In 1962, PWV entered into a 99-year renewable lease with Norfolk Southern (hereinafter “Norfolk”) with a fixed base rental of $915,000 per year plus “Additional Rent.” Additional Rent includes, among other things, “deduction-based additional rental.” (Federal tax deductions for depreciation, amortization, etc.) Norfolk is also obligated to pay all expenses Pittsburgh & West Virginia Railroad incurs when they come due and assumes “all obligations” Pittsburgh & West Virginia Railroad incurs relating to Pittsburgh & West Virginia Railroad performing its legal duties and protecting its rights under the terms of the lease.

Key lease provisions include:

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DISCLOSURE: Al Speisman is a significant shareholder in Power REIT. On January 3, 2017, he filed an more

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Comments

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Barry Hochhauser 2 years ago Member's comment

I enjoyed your work, why don't you publish more here?

Bill Johnson 2 years ago Member's comment

Thanks for this, Al.

Al Speisman 2 years ago Author's comment

Power REIT has issued an 8K indicating a ruling from the Third Circuit Court of Appeals affirming the ruling from the lower court. The 8K also has the ruling as an attachment.

Power REIT should consider whether to appeal the ruling to the full Third Circuit Court of Appeals Judge panel.  The ruling affirming the lower court was issued from a 3 judge panel.

 The decision as to whether PW should pursue an "en banc" ruling should evaluate the cost of such a strategy versus the low probability of success in that strategy.

Overall, the third Circuit Court of Appeals has a low success rate for appellants.

Al Speisman 3 years ago Author's comment

Item 8.01 – Stock Buyback

 

On January 23, 2017, the Registrant announces that the board of directors has authorized the purchase by the Company of up to $750,000 worth of shares of the Company’s outstanding common stock, from time-to-time in the open market. Purchases will be made depending on then-current market and economic considerations and the Company’s view of its stock trading price, and subject to compliance with applicable legal requirements. Any such purchase activity, including the number of any shares purchased and their average price will be disclosed in subsequent public filings.

Al Speisman 3 years ago Author's comment

I do not anticipate any further significant appellate litigation expenses for Power REIT. The litigation has been going on for 5 years. We're now awaiting a decision from the Third Circuit Court of Appeals. A decision will be made based upon the briefs submitted.

Once the Appellate case is concluded, there's a high probability that the dividend will be re-instituted. Prior to the litigation, PW was paying a dividend of.40 per share.

Power REIT in its recently updated Shareholder Presentation( under the Investor Relations tab) www.pwreit.com,

indicates: "Potential to resume common dividends as litigation expenses decline

– Historical dividend rate at $0.10 / quarter (prior to litigation)"

Also, note on page 18 of the Shareholder Presentation that Core FFO is at.60 per share.

Joe Economy 3 years ago Member's comment

The REIT had a nice bump yesterday closing up around 4%. In terms of this one as an investment I am a little disappointed that there is zero dividend. REITS are known for having some of the highest dividend payouts in the market place, so when considering an investment choice, I would probably look for an alternative REIT that also provides dividend income. Any thoughts?