Power REIT: Why David Should Defeat Goliath

Potential Damages include:

1. Recovery of Power REIT/ Pittsburgh and West Virginia Railway Attorney Fees: approaching $4 Million.

2. Recovery of Interest: Section 11, (Termination of Lease) provides for interest at 6% per annum from date of default.

3. The Transactions Account reflects an admitted indebtedness of approximately $17 Million as of 2012. Of that amount, approximately $16 Million exceeds the 5% cap.No updates of the current Transactions Account balance have been provided by Norfolk Southern to Pittsburgh and West Virginia Railway.

4. An additional $14 Million in dispositions have been identified by Pittsburgh and West Virginia Railway but have not been recorded by Norfolk Southern in the Transactions Account.

5. If the Court determines a Norfolk Southern default has occurred, under Section 11, Pittsburgh and West Virginia Railway is also entitled terminate the Lease and to “such machinery, equipment, supplies, motive power, rolling stock and cash as will be sufficient to enable Lessor to operate the demised property for a period of one year after the return thereof….”. A key variable in determining the amount owed to Pittsburgh and West Virginia Railway would require analysis of Wheeling & Lake Erie Railway Company’s detailed financial statements.

6. If the Court rules Norfolk Southern has defaulted, the entire property reverts back to Pittsburgh and West Virginia Railway.The rental established of $915,000 per year was established in 1962 and does not escalate and is likely significantly below the current market value.

7. What Pittsburgh and West Virginia Railway could actually lease the property for in today’s market is speculative. Norfolk Southern and Wheeling & Lake Erie Railway have refused to provide operational and income data to Pittsburgh and West Virginia Railway (also a potential default based on a failure to comply with a contractual right contained in the lease that allows Pittsburgh and West Virginia Railway to inspect the books and records of Norfolk Southern). However, based upon discussions with railroad consultants, a generic valuation range may be in the range of $1 Million per track mile. Pittsburgh and West Virginia Railway has a total of 131.59 track miles. Note that in recent years, Wheeling & Lake Erie Railway has experienced significant traffic growth as a result of Marcellus Shale activity.

8. One could speculatively project that with either a new or renewed lease, annual revenues to Pittsburgh and West Virginia Railway would be between $5 Million to $10 Million per annum. That projected valuation does not include potential mineral rights on Pittsburgh and West Virginia Railway land.


Summary

Litigation, especially Appellate Litigation, can have a life of its own. Recent articles written on Power REIT have predicted a probability of success in the area of 10 to 15 percent. However, after extensive review of the ongoing litigation, including in depth review and analysis of the facts and pending appellate briefs before the 3rd Circuit Court of appeals, I sincerely believe that David (Pittsburgh and West Virginia Railway) should defeat Goliath (Norfolk Southern) based on the merits of the case. Ultimately there is no way to know if the appeal will be successful….

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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 4 years ago Member's comment

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

Bill Johnson 4 years ago Member's comment

Thanks for this, Al.

Al Speisman 4 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 5 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 5 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 5 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?