UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF
1934
For the Quarterly period ended September
30, 2011
1-5447
(Commission File Number)
PITTSBURGH &
WEST VIRGINIA RAILROAD
(Exact name of registrant as
specified in its charter)
Pennsylvania
|
25-6002536
|
(State of Organization)
|
(I.R.S. Employer Identification
No.)
|
|
|
55 Edison Avenue, West Babylon, NY
|
11704
|
(Address of principal executive
offices)
|
(Zip Code)
|
(212) 750-0373
(Registrant’s telephone number)
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
__X__ No _____
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large
accelerated filer _____ Accelerated filer _____
Non-accelerated filer _____ Smaller reporting
company __X__
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
_____ No __X__
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
1,623,250
shares of beneficial interest, without par value, outstanding at September 30,
2011.
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
STATEMENT OF INCOME
(Dollars in Thousands except
Per Share Amounts)
(Unaudited)
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
2011
|
2010
|
2011
|
2010
|
INCOME
AVAILABLE FOR DISTRIBUTION
|
|
|
|
|
Interest
Income from capital lease
|
$
229
|
$
229
|
$
686
|
$
686
|
General
& Administrative Expense
|
55
|
27
|
217
|
136
|
NET
INCOME
|
174
|
202
|
469
|
550
|
|
|
|
|
|
Fully
Diluted, Per Share:
|
|
|
|
|
Net
Income
|
$
.11
|
$
.13
|
$
.29
|
$
. 36
|
Cash
Dividends
|
$
.10
|
$
.13
|
$
.30
|
$
. 37
|
|
|
|
|
|
Weighted
Average Number of Shares Outstanding
|
1,623,250
|
1,510,000
|
1,592,137
|
1,510,000
|
|
|
|
|
|
|
Amounts
may not add due to rounding. The accompanying notes are an integral part of
these financial statements.
BALANCE SHEET
(Dollars in Thousands)
|
|
|
(Unaudited)
September 30,
2011
|
(Audited)
December 31,
2010
|
ASSETS
|
|
|
Cash
|
$
979
|
$
49
|
Prepaid
Expense
|
13
|
-
|
Net
investment in capital lease
|
9,150
|
9,150
|
TOTAL
ASSETS
|
$10,142
|
$
9,199
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
Accounts
Payable
|
$
-
|
$
-
|
Shareholders'
equity:
Shares
of beneficial interest, at no par value (1,623,250 and
1,510,000
shares issued and outstanding as of 9/30/2011 and
12/31/2010,
respectively)
|
10,095
|
9,145
|
Retained
Earnings
|
47
|
54
|
Total
shareholders' equity
|
10,142
|
9,199
|
TOTAL
LIABILITIES AND
SHAREHOLDERS'
EQUITY
|
10,142
|
9,199
|
|
|
|
SHARES
OF BENEFICIAL INTEREST
|
|
|
Par
Value
|
$
0
|
$
0
|
Common
shares issued
|
1,623,250
|
1,510,000
|
Common
shares outstanding
|
1,623,250
|
1,510,000
|
|
|
|
|
Amounts
may not add due to rounding. The accompanying notes are an integral part of
these financial statements.
STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
|
|
Nine Months Ended
September 30,
|
|
2011
|
2010
|
CASH
FLOW FROM OPERATING ACTIVITIES:
|
|
|
Net
Income
|
$
469
|
$
550
|
Change
in Prepaid Expenses
|
(13 )
|
-
|
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
$
456
|
$
550
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES:
|
|
|
Dividends
Paid
|
(476 )
|
(559 )
|
Net
Proceeds from Financing
|
950
|
-
|
NET
CASH PROVIDED BY (USED IN)
FINANCING
ACTIVITIES
|
$
474
|
$(559 )
|
|
|
|
Net
increase (decrease) in Cash
|
930
|
(9 )
|
Cash,
beginning of period
|
49
|
40
|
Cash,
end of period
|
$
979
|
$
31
|
Amounts
may not add due to rounding. The accompanying notes are an integral part of
these financial statements.
Notes
to unaudited financial statements:
1.
General
Information
The
foregoing interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for a fair presentation of the
results of operations for the interim periods presented. All adjustments are of
a normal recurring nature.
Pittsburgh
& West Virginia Railroad ("Registrant" or "Trust") has
elected to be treated for tax purposes as a real estate investment trust
(REIT). It is the Trust's policy to distribute at least 90% of its ordinary
taxable income to its shareholders to maintain its REIT corporate status. Furthermore,
in accordance with the terms of the lease, Norfolk Southern Corporation (“NSC”)
will reimburse the Trust, in the form of additional rent, for all taxes and
governmental charges imposed upon the leased assets of the Trust except for
taxes relating to base cash rent payments made by the NSC. Due to the
treatment of the lease as a direct financing lease for GAAP purposes, the tax
basis of the leased property is higher than the GAAP basis in the leased
property.
Under
the provisions of the lease, the Trust may not issue, without the prior written
consent of NSC, any shares or options to purchase shares or declare any
dividends on its shares of beneficial interest in an amount exceeding the value
of the assets not covered by the lease plus the annual cash rent of $915,000 to
be received under the lease, less any expenses incurred for the benefit of
shareholders. At September 30, 2011, all net assets, other than cash, are
covered by the lease. The Trust may not borrow any money or assume any guarantees
except with the prior written consent of NSC.
2.
Summary
of Significant Accounting Policies
Under
the terms of the lease, NSC has leased all of Pittsburgh & West Virginia
Railroad's real properties, including its railroad lines, for a term of 99 years,
renewable by the lessee upon the same terms for additional 99-year terms in
perpetuity. The lease provides for a base cash rental of $915,000 per year for
the current lease period and all renewal periods. The net investment in
capital lease, recognizing renewal options in perpetuity, was estimated to have
a current value of $9,150,000 assuming an implicit interest rate of 10%.
For interim financial reporting purposes, the accounting policy has changed to record a prepaid expense for certain annual expenses and to allocate these expenses to interim periods based on the benefit received in each interim period. Previously, these amounts were expensed in the interim period in which they were paid. The effect of this change is to reduce expenses by $21,000 in the quarter ended March 31, 2011 and increase expenses by $7,000 and $7,000 in the quarters ended June 30, 2011 and September 30, 2011 respectively.
3.
Equity Issuance and Reorganization
With the consent of NSC, on March 16, 2011, the Trust completed a rights offering, pursuant to which the Trust issued 113,250 common shares of beneficial interest, no par value, raising gross proceeds of $1,019,000. During the reporting period, the Trust incurred approximately $2,000 of expenses related to a proposed corporate reorganization transaction in which the Trust will reincorporate from Pennsylvania to Maryland through a merger with “Power REIT”, a wholly-owned, subsidiary of the Trust. After completion of the reincorporation merger, the Trust will become a wholly owned subsidiary of Power REIT. Following the reincorporation merger, Power REIT plans to establish an umbrella partnership (“UPREIT”) through which it expects to hold the majority of its assets, including its interests in the Trust. The Trust expects the corporate reorganization will be completed in the fourth quarter and expects to incur additional legal and administrative expenses related to the corporate reorganization in the fourth quarter.
Item
2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q 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. 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 or achievements will likely differ from the anticipated results,
performance or achievements that are expressed or implied by our
forward-looking statements, and such difference might 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
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
All
of the Trust's railroad properties are leased to Norfolk and Western Railway
Company, now known as Norfolk Southern Corporation (“NSC”), for 99 years, with
unlimited renewals on the same terms. Cash rental is a fixed amount of
$915,000 per year, with no provision for change during the term of the lease
and any renewal periods. This cash rental is the only current source of
funds. Although the lease provides for additional rentals to be recorded,
these amounts do not increase cash flow or net income as they are charged to
NSC's settlement account with no requirement for payment, except at termination
or non renewal of the lease. Due to the indeterminate settlement date, these
additional rental amounts are not recorded for financial reporting purposes.
In
comparing the third quarter of 2011 with the preceding second quarter of 2011
and the third quarter of 2010, revenues totaled $229,000, $229,000, and
$229,000, respectively. Net income and income available for distribution was $174,000,
$127,000 and $202,000 respectively.
Trust's
cash outlays, other than dividend payments, are for general and administrative (G&A)
expenses, which include professional fees, consultants, office rental and
director's fees. The existing leased properties are maintained entirely at
NSC's expense.
Due to
substantial constraints on the Trust's income and increasing costs related to
complying with the laws and regulations related to its public companies, the Trust
is seeking to broaden its business to include new investments in transportation
and energy infrastructure assets, consistent with its status as an
infrastructure focused real-estate investment trust (REIT). The Trust raised
approximately $1,019,000 of gross proceeds in connection with a rights offering
that closed on March 16, 2011 and plans to use the proceeds to provide working
capital for its business expansion. The Trust expects that G&A expenses
will increase in 2011 as it commences activities to further its business
expansion and position the Trust for future growth.
On
August 31, 2011, the Trust filed a preliminary Form S-4 (the “Registration
Statement”) with the Securities Exchange Commission (“SEC”) to effect a
reorganization of the Trust under “Power REIT,” a newly formed, Maryland domiciled REIT and wholly owned subsidiary of Trust. The Board of Trustees
believes the reorganization is in the best interest of the Trust as it pursues
growth as an infrastructure REIT. The Board of Trustees believes the
reorganization should provide the Trust with greater access to the capital
markets, more flexibility in structuring transactions and that the "Power
REIT" name is better aligned with the Trust's current business plan. The Trust's
real asset infrastructure investment strategy is expected to build upon on its
historical ownership of the Pittsburgh & West Virginia Railroad (“PWV”).
Summary
of Reorganization
The
Trust’s Board of Trustees and the Board of Trustees of POWER REIT have each
approved the reincorporation of the Trust from the Commonwealth of Pennsylvania to the State of Maryland, which will be accomplished through the merger (the
“Reincorporation Merger”) of Trust with POWER REIT PA, a Pennsylvania limited
liability company and wholly-owned subsidiary of Power REIT. Upon the effective
date of the reincorporation merger, holders of Trust common shares will receive
one newly issued common share, $0.001 par value per share, of Power REIT for
each common share of Trust that they own, without any action of shareholders
required, and the Trust will survive the Reincorporation Merger as a
wholly-owned subsidiary of Power REIT.
Following
the consummation of the Reincorporation Merger, Power REIT intends to
reorganize itself into an umbrella partnership REIT structure (the “UPREIT
Reorganization”) by contributing the equity shares of the Trustto Power REIT,
LP, a to be formed Delaware limited partnership (the “Operating Partnership”).
Upon the completion of the UPREIT Reorganization, Power REIT will initially own
all of the equity interests of the Operating Partnership, and the Trust will
continue as a wholly-owned subsidiary of the Operating Partnership.
The
Registration Statement has not yet become effective and the information in the Registration
Statement may be changed by the Trust in the future prior to its effectiveness.
The Trust currently expects to complete the reorganization in the fourth
quarter of 2011 following the effectiveness of its Registration Statement. It
is possible that factors outside the control of the Trust could result in the reorganization
being completed at a later time, or not at all or that the Board of Trustees
may, in their sole discretion, cancel or modify the reorganization at any time
for any reason.
There
can be no assurance that the Trust will be successful in broadening its
business. See Note Regarding Forward-Looking Statements and additional risk
factors that are more fully disclosed in Trust's Form S-4 as filed with the SEC
on August 31, 2011.
Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a
smaller reporting company, we are not required to provide the information
required by this Item.
Item
4. CONTROLS AND PROCEDURES
Management
is responsible for establishing and maintaining effective disclosure controls
and procedures. As of the end of the period covered by this report, the
Registrant carried out an evaluation under the supervision and with the
participation of the Registrant's management, including the Chief Executive
Officer and Secretary-Treasurer, of the effectiveness of the design and
operation of the disclosure controls and procedures pursuant to Rule 13a-15
under the Securities and Exchange Act of 1934, as amended. Based on that
evaluation, the Chief Executive Officer and Secretary-Treasurer have concluded
that the Registrant's disclosure controls and procedures are adequate and
effective to ensure that information required to be disclosed in the
Registrant's required SEC filings is recorded, processed, summarized and
reported within the time periods specified in the Commission's rules and forms.
There
have been no significant changes in the Registrant's internal controls or in
other factors that that could significantly affect internal controls subsequent
to the date the Registrant carried out its evaluation.
We
maintain a system of internal control over financial reporting that is designed
to provide reasonable assurance that our books and records accurately reflect
the transactions of the Registrant and that our policies and procedures are
followed. There have been no changes in our internal control over financial
reporting during the period covered by this report that have materially
affected, or are reasonable likely to materially affect such controls.
PART
II. OTHER INFORMATION
Item 1.
Legal Proceedings
None
Item
1A. Risk Factors
The
Registrant's results of operations and financial condition are subject to
numerous risks and uncertainties described in our preliminary Form S-4 dated
August 31, 2011, which risk factors are incorporated herein by reference. You
should carefully consider these risk factors in conjunction with the other
information contained in this report. Should any of these risks materialize, the
Registrant's business, financial condition and future prospects could be
negatively impacted.
Item
5. Other Information
None.
Item 6.
Exhibits
Exhibit
1.1 The Trust’s Current Reports on Form 8-K filed on December 7, 2010, February
15, 2011, March 11, 2011 and March 17, 2011, May 17, 2011, June 1, 2011, August
31, 2011 and October 17, 2011 are incorporated by reference.
Exhibit
1.2 The Trust’s Current Annual Report on Form 10-K filed on March 28, 2011 is
incorporated by reference.
Exhibit
1.3 The Trust’s Form S-4 filed with the SEC on August 31, 2011 is incorporated
by reference.
Exhibit
31.1 Section 302 Certification for David H. Lesser
Exhibit
31.2 Section 302 Certification for Arun Mittal
Exhibit
32 Section 906 Certification for David H. Lesser and Arun Mittal.
Exhibit
101 The following materials from the Quarterly Report on Form 10-Q for the
Registrant, for the quarter ended September 30, 2011, formatted in XBRL
(eXtensible Business Reporting Language): (i) Statement of Income, (ii) Balance
Sheet, (iii) Statement of Cash Flows, and (iv) Notes to the Unaudited Financial
Statements, tagged as blocks of text.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
PITTSBURGH
& WEST VIRGINIA RAILROAD
/s/David
H. Lesser
David
H. Lesser
CEO
& Chairman of the Board
Date:
October 19, 2011
/s/Arun
Mittal
Arun
Mittal
Secretary-Treasurer
Date:
October 19, 2011
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