Throughout this prospectus supplement, the
accompanying prospectus and the documents incorporated by reference in them, we make “forward-looking statements” as
that term is defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include the words
“may,” “would,” “could,” “likely,” “estimate,” “intend,”
“plan,” “continue,” “believe,” “expect” or “anticipate” and similar
words, as well as statements relating to our acquisition, development and expansion plans, objectives and expectations, our liquidity
projections and similar topics. These forward-looking statements generally relate to our plans, objectives, prospects and expectations
for future operations and results and are based upon what we consider to be reasonable future estimates. Although we believe that
our plans, objectives, prospects and expectations reflected in, or suggested by, such forward-looking statements are reasonable
at the present time, we may not achieve them or we may modify them from time to time. Furthermore, there is no assurance that any
positive trends suggested or referred to in such statements will continue.
Forward-looking statements
are not guarantees of future performance, and a variety of factors could cause our actual results to differ materially from the
anticipated or expected results expressed in these forward-looking statements. Many of these factors are beyond our ability to
control or predict, and readers are cautioned not to put undue reliance on any forward-looking statements.
You should read
this prospectus supplement, the accompanying prospectus and the information incorporated into them by reference thoroughly with
the understanding that actual future results may be materially different from what we expect. In particular, you should read the
“Risk Factors” section of this prospectus supplement and the accompanying prospectus for information regarding risk
factors that could affect our results.
The following list, which is not intended
to be an all-encompassing list of risks and uncertainties affecting us, summarizes several factors that could cause our actual
results to differ materially from those anticipated or expected in these forward-looking statements:
We undertake no obligation to update publicly
any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by
law. You are advised to consult any further disclosures we make on related subjects in our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, and Current Reports on Form 8-K, as filed with the Securities and Exchange Commission (the “SEC”)
.
Also note that we provide cautionary discussion of risks, uncertainties and assumptions relevant to our business in our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, including those incorporated by reference
in this prospectus supplement and the accompanying prospectus.
The risks and uncertainties referred to
above are factors that, individually or in the aggregate, management believes could cause our actual results to differ materially
from expected or historical results. We note these factors for investors as permitted by the Private Securities Litigation Reform
Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not
consider such disclosures to be a complete discussion of all potential risks or uncertainties.
INVESTING IN OUR SECURITIES INVOLVES SIGNIFICANT RISKS.
SEE “RISK FACTORS” STARTING ON PAGE 9 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities, or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The date of this prospectus is May 10,
2012
TABLE OF CONTENTS
Page
About
this Prospectus
|
ii
|
Cautionary Note Regarding
Forward-Looking Statements
|
iii
|
Prospectus Summary
|
1
|
Risk Factors
|
9
|
Company Overview
|
22
|
General Information
as to Registrant
|
26
|
Management
|
27
|
Policies with Respect
to Certain Activities
|
32
|
Investment Policies
|
34
|
Dividend and Distribution
Policy
|
36
|
Description of Real
Estate and Operating Data
|
36
|
Selected Consolidated
Financial Data
|
37
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
38
|
Legal Proceedings
|
39
|
Market Price Range
and Dividends on our Common Shares and Related Matters
|
40
|
Principal Shareholders
of Power REIT
|
41
|
Selling Security
Holders
|
41
|
Use of Proceeds
|
41
|
Description of Securities
|
41
|
Plan of Distribution
|
44
|
Material United States
Federal Income Tax Considerations
|
45
|
Experts
|
53
|
Legal Matters
|
53
|
Material Changes
|
53
|
Documents Incorporated
by Reference
|
53
|
Where You Can Find
More Information
|
54
|
Disclosure of Commission
Position on Indemnification for Securities Act Liabilities
|
54
|
ABOUT THIS PROSPECTUS
Unless stated otherwise or unless the context
requires otherwise, “Power REIT,” “Company,” “we,” “our” and “us”
refer to Power REIT, a Maryland real estate investment trust, and its consolidated subsidiaries, including our operating partnership,
if any. See “General Information as to Registrant – Corporate Structure and UPREIT Reorganization”.
This prospectus is part of a registration
statement on Form S-3 (the “registration statement”) filed with the Securities and Exchange Commission (the “SEC”)
using a “shelf” registration process. Under this shelf registration process, any combination of the securities described
in this prospectus may be offered and sold from time to time in one or more offerings. This prospectus provides you with a general
description of the securities that may be offered. Each time securities are offered, we will provide a prospectus supplement that
will contain specific information about the terms of that offering and those securities. The prospectus supplement and information
incorporated by reference in the prospectus supplement may also add, update or change information contained in this prospectus
or incorporated by reference in this prospectus and, accordingly, to the extent inconsistent, information in the prospectus supplement
or incorporated by reference in the prospectus supplement will supersede information in this prospectus or incorporated by reference
in this prospectus. You should read this prospectus, the applicable prospectus supplement and the information incorporated by
reference in this prospectus and the prospectus supplement before making an investment decision. See “Documents Incorporated
by Reference” and “Where You Can Find More Information”.
You should rely only on the information
contained in or incorporated by reference in this prospectus and any accompanying prospectus supplement. We have not authorized
any underwriter, salesperson or other person to provide you with additional or different information. You must not rely on any
unauthorized information or representations.
This prospectus, the accompanying prospectus
supplement and the information they incorporate by reference constitute an offer to sell only the securities offered in such prospectus
supplement, and only under circumstances and in jurisdictions where it is lawful to so offer and sell. You should assume that
the information appearing in this prospectus or the accompanying prospectus supplement, or incorporated by reference in either
of them, is accurate only as of its respective date, regardless of the time of delivery of this prospectus or the prospectus supplement
or of any offer or sale of any security. Our business, financial condition, results of operations and prospects may have changed
since the relevant date or dates.
You should not consider any information
in this prospectus or the accompanying prospectus supplement, or incorporated by reference in either of them, to be investment,
legal or tax advice. We encourage you to consult your own legal counsel, accountant and other advisors for investment, legal,
tax and related advice regarding an investment in our securities.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
Throughout this prospectus, the accompanying
prospectus supplement and the documents incorporated by reference in them, we make “forward-looking statements” as
that term is defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include
the words “may,” “would,” “could,” “likely,” “estimate,” “intend,”
“plan,” “continue,” “believe,” “expect” or “anticipate” and similar
words, as well as statements relating to our acquisition, development and expansion plans, objectives and expectations, our liquidity
projections and similar topics. These forward-looking statements generally relate to our plans, objectives, prospects and expectations
for future operations and results and are based upon what we consider to be reasonable future estimates. Although we believe that
our plans, objectives, prospects and expectations reflected in, or suggested by, such forward-looking statements are reasonable
at the present time, we may not achieve them or we may modify them from time to time. Furthermore, there is no assurance that
any positive trends suggested or referred to in such statements will continue.
Forward-looking statements
are not guarantees of future performance, and a variety of factors could cause our actual results to differ materially from the
anticipated or expected results expressed in these forward-looking statements. Many of these factors are beyond our ability to
control or predict, and readers are cautioned not to put undue reliance on any forward-looking statements.
You should read
this prospectus, the accompanying prospectus supplement and the information incorporated into them by reference thoroughly with
the understanding that actual future results may be materially different from what we expect. In particular, you should read the
“Risk Factors” section of this prospectus for information regarding risk factors that could affect our results.
The following list, which is not intended
to be an all-encompassing list of risks and uncertainties affecting us, summarizes several factors that could cause our actual
results to differ materially from those anticipated or expected in these forward-looking statements:
|
·
|
general
economic
conditions
in markets
in which
we conduct
business;
|
|
·
|
business
conditions
in the energy
and transportation
industries;
|
|
·
|
the regulatory
environment;
|
|
·
|
fluctuations
in interest
rates;
|
|
·
|
the performance
of existing
investments
or new investments
that we may
make;
|
|
·
|
our ability
to source
acquisitions
at valuations
favorable
to us;
|
|
·
|
our ability
to maintain
our REIT
status; and
|
We undertake no obligation to update publicly
any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required
by law. You are advised to consult any further disclosures we make on related subjects in our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as filed with the SEC. Also note that we provide cautionary
discussion of risks, uncertainties and assumptions relevant to our business in our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, including those incorporated by reference in this prospectus and
the accompanying prospectus supplement.
The risks and uncertainties referred to
above are factors that, individually or in the aggregate, management believes could cause our actual results to differ materially
from expected or historical results. We note these factors for investors as permitted by the Private Securities Litigation Reform
Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not
consider such disclosures to be a complete discussion of all potential risks or uncertainties.
PROSPECTUS SUMMARY
The following summary provides an overview
of certain information about Power REIT and its securities and may not contain all the information important to you. This summary
is qualified in its entirety by, and should be read together with, the information contained in other parts of this prospectus,
the accompanying prospectus supplement and the information we incorporate by reference. You should read this entire prospectus,
the accompanying prospectus supplement and the information we incorporate by reference carefully before making a decision about
whether to invest in our securities.
Overview
Power REIT is a publicly traded real estate
investment trust, or REIT, that is in the business of owning, acquiring and developing energy and transportation infrastructure
assets within the United States, including its territories (“U.S.”). Our wholly owned, qualified REIT subsidiary,
Pittsburgh & West Virginia Railroad, owns approximately 112 miles of railroad track that is leased pursuant to a triple-net
lease to Norfolk Southern Corporation. Our primary business objectives are to create long-term shareholder value and growth of
funds from operations per share, or FFO, and dividends per share.
Power REIT is incorporated in the State
of Maryland as a real estate investment trust. Power REIT was formed in August 2011 to effect a triangular merger of the Pittsburgh
& West Virginia Railroad (“Reorganization”). Pittsburgh & West Virginia Railroad was a publicly traded REIT
prior to the Reorganization and was listed on the American Stock Exchange in 1967. Concurrent with the Reorganization, which was
completed on December 2, 2011, Power REIT became listed on the NYSE Amex under the ticker symbol “PW” and Pittsburgh
& West Virginia Railroad survived the Reorganization as a wholly-owned, special purpose subsidiary of Power REIT with a sole
purpose of owning and managing its railroad property. Power REIT is an internally managed REIT.
Our investment strategy is to acquire infrastructure
assets that qualify for REIT ownership, with an initial focus on the transportation and energy industries. We believe infrastructure
assets often have a significant amount of embedded real estate in the form of rights of way, land, leasehold interests and passive
physical infrastructure that qualify for REIT ownership.
We expect to access potential acquisitions
through a broad network of relationships, including developers, brokers, investment banks and private equity firms. Our relationships
often choose to work with us due to our strengths as a real estate investment trust and our ability to provide a broader array
of transaction structures to address the varying need of sellers and infrastructure asset developers. We believe this allows us
to selectively access and acquire infrastructure assets that are accretive to our business plans.
Our capitalization strategy is to create
and maintain what we believe is a stable debt and equity capital structure relative to the assets that we are targeting to acquire.
We intend to employ prudent amounts of leverage as a means of providing additional funds to acquire infrastructure assets, to
refinance existing debt or for general corporate purposes. As of March 31, 2012, Power REIT had zero debt on a consolidated basis.
We intend to target the ratio of debt to enterprise value to no more than 50%, although our organizational documents contain no
limitations regarding the maximum level of debt that we may incur and we may exceed this amount from time to time. Our debt may
consist of recourse and non-recourse debt, guarantees or other types of debt financing arrangements.
Our principal executive offices are located
at 55 Edison Avenue, West Babylon, NY 11704 and our offices can be reached by telephone at (212) 750-0373. Our website address
is
http://www.pwreit.com
. The information on, or otherwise accessible through, our website does not constitute a part of
this prospectus.
Our Business and Growth Strategies
Our primary business objectives are to
create long-term shareholder value and growth of FFO per share and dividends per share. We intend to achieve these objectives
primarily through the acquisition of infrastructure investments. Investments may include interests in land and other real property
associated with infrastructure projects. The company believes that the assets it will acquire represent a critical component of
their respective infrastructure projects and therefore should provide reliable cash flow in the form of lease payments. We intend
to invest in stabilized infrastructure assets and selectively invest in development opportunities that can offer higher rates
of return and/or upside potential through early-stage investment entry and/or additional investment and development opportunities
beyond the initial development.
|
·
|
Focus
on Infrastructure
Assets with
Predictable
Cash flows
and Attractive
Risk-Adjusted
Returns
.
Infrastructure
assets often
have significant
replacement
or relocation
costs. In
many cases,
the projects
are highly
dependent
on a specific
location
and cannot
be relocated
either due
to contractual
issues or
are impractical
to relocate
due to cost
advantages,
such as
rights of
way or proximity
to other
supporting
or complementary
infrastructure.
In some
cases the
location
might have
unique site-specific
natural
and other
resources
making it
particularly
valuable
for such
project.
Further,
user demand
for infrastructure
is often
inelastic
and may
be positively
influenced
by government-mandated
regulations.
Infrastructure
revenues
are often
supported
by long-term
agreements
with customers
that have
strong underlying
credit characteristics,
which should
contribute
to stable,
long-term
cash flows.
We believe
these aforementioned
attributes
are some
of the reasons
that infrastructure
assets are
able to
generate
long-term,
predictable
cash flows
that can
be uncorrelated
to the broader
economy.
|
|
·
|
Unlock
Embedded
Real Estate
Value within
Infrastructure
Assets
.
We intend
to focus
on infrastructure
projects
that have
a significant
amount of
embedded
real estate
in the form
of rights
of way,
land, leasehold
interests
and passive
physical
infrastructure
that are
considered
“real
assets”
and that
qualify
for REIT
ownership.
We believe
a significant
portion
of the energy
and transportation
industries
are ripe
for REIT
ownership
structures,
including
renewable
energy,
energy transmission
and transportation
assets.
|
|
o
|
Existing
Railroad
Asset
.
We
currently
own,
through
our
wholly
owned
subsidiary,
Pittsburgh
&
West
Virginia
Railroad,
112
of
miles
of
railroad
and
associated
branch
lines,
including
track,
land
and
rights
of
way,
that
is
currently
leased
to
Norfolk
Southern
Corporation
on
a
triple-net
basis.
We
believe
that
this
property
cannot
be
replaced
on
a
cost-competitive
basis
today,
due
to
the
difficulty
of
assembling
the
real
estate
and
rights
of
way.
Our
lessee,
Norfolk
Southern
Corporation
(“NSC”),
is
a
Class
I
railroad
and
is
one
of
the
largest
railroad
companies
in
the
U.S.
As
reported
on
its
Form
10-K
filed
with
the
SEC,
Norfolk
Southern
Corporation
has
approximately
$9.9
billion
of
shareholders’
equity
as
of
December
31,
2011
and
earned
$1.9
billion
of
net
income
during
fiscal
year
2011.
We
believe
this
railroad
asset
will
continue
to
generate
consistent
cash
flow
over
time.
|
|
o
|
Renewable
Energy
Assets
.
We
intend
to
initially
concentrate
our
growth
efforts
within
the
renewable
energy
sector.
To
date
we
have
primarily
focused
on
MW
scale
wind
and
ground
mounted
solar,
but
have
also
explored
and
will
continue
to
explore
other
renewable
energy
asset
classes.
These
assets
typically
have
long-term
power
purchase
agreements
with
investment
grade,
regulated
utilities.
Our
goal
is
to
acquire
the
real
property
assets
of
these
projects,
such
as
land,
leasehold
interests,
rights
of
way
and
associated
transmission
and
other
infrastructure
and
development
work,
and
lease
such
assets
back
to
the
respective
project
companies
on
a
long-term
basis.
Our
returns
will
generally
be
through
lease
payments
that
will
be
structured
as
an
operating
expense
of
the
respective
project.
In
addition
to
an
existing
focus
on
wind
and
solar
projects,
we
will
continue
to
explore
investment
in
other
renewable
energy
assets
classes
such
as
hydroelectric,
geothermal,
biofuels
and
biomass.
|
|
o
|
Energy,
Transportation
and
Other
Infrastructure
Assets
.
In
addition
to
renewable
energy
assets,
we
intend
to
opportunistically
acquire
non-renewable
energy
and
transportation
infrastructure
related
real
assets,
that
may
include,
but
are
not
limited
to,
transmission
assets,
pipelines,
railroads,
ports,
highways
and
bridges.
On
an
opportunistic
basis,
we
may
acquire
other
infrastructure
assets
that
are
not
related
to
energy
or
transportation,
but
that
are
REIT
eligible
and
that
can
create
value
for
our
shareholders.
|
|
·
|
Create
Value Through
Flexible
Transaction
Structuring
.
We will
generally
seek to
structure
our investments
in the form
of lease
transactions
that have
a base rent,
and in some
cases, will
include
escalation
and/or revenue
participation
clauses
tied to
underlying
gross revenue.
Although
participation
in gross
revenue
may result
in variability
to our lease
cash flows,
we believe
such participation,
when used
appropriately,
can generate
upside returns.
We will
also seek,
where appropriate,
to structure
triple net
leases or
other leases,
where the
bulk of
the operating
expenses
are borne
by our lessees.
In certain
cases, we
may seek
to structure
loans or
equity participations.
We will
generally
seek to
mitigate
our downside
and create
situations
where we
have a high
confidence
of the stability
of the projected
long-term
cash flows.
|
|
·
|
Create
Value Through
Long-term,
Strategic
Ownership
.
Where possible,
we will
seek to
acquire
land and
rights of
ways on
a fee-simple
basis. We
believe
the acquisition
and control
of site
specific
rights of
way and
renewable
energy resources,
such as
air rights
or solar
resources,
can create
long-term
value through
additional
development,
revenue
opportunities
and/or long-term
valuation
upside,
which may
be incrementally
accretive
to our initial
investment
thesis and
provides
us with
a measure
of inflation
protection.
|
Market Opportunity
|
·
|
Infrastructure
provides
essential
services,
and the
stable supply
and demand
dynamics
of the market
are expected
to continue
in the future
.
We believe
energy infrastructure
is the backbone
of modern
society.
The demand
for these
resources
is directly
correlated
with population
growth,
and has
a low correlation
to market
cycles.
U.S. energy
consumption
is forecasted
to grow
by 20% from
2009 to
the year
2035 according
to the U.S.
Energy Information
Administration’s
(EIA) “Annual
Energy Outlook
April 2011”.
This growth
in energy
demand is
expected
to create
significant
opportunities
to invest
in generation,
transmission
and distribution.
|
|
·
|
Large
segment
of infrastructure
assets are
REIT-eligible
.
We believe
infrastructure
assets often
have a significant
amount of
embedded
real property
value and
that these
real property
assets can
be acquired
by REITs.
Our wholly
owned subsidiary,
Pittsburgh
& West
Virginia
Railroad,
received
a revenue
ruling in
the 1960s
qualifying
passive
railroad
property,
including
bridges,
tunnels
and railroad
track as
“real
assets”.
Since the
railroad
revenue
ruling in
the 1960s,
numerous
other private
letter rulings
have been
issued by
the IRS,
defining
that certain
assets,
including
cell towers,
data centers,
electric
and gas
transmission
and distribution
assets,
are real
assets for
tax purposes
that can
be held
by REITs.
The private
letter rulings
treat such
assets as
qualifying
real estate
assets if
the income
from these
assets is
derived
from rents
on real
property.
Although
these private
letter rulings
may only
be relied
upon by
the taxpayer
to whom
they were
issued,
we believe
these rulings
provide
insight
into the
current
thinking
of the IRs
with respect
to infrastructure
assets.
|
|
·
|
Investment
is needed
in U.S.
energy infrastructure
.
Due to continued
growth in
electricity
demand,
aging infrastructure
and requirements
to transmit
renewable
energy power
from generating
centers
to population
centers,
we believe
that substantial
amounts
of capital
will be
invested
in energy
infrastructure.
According
to the Edison
Electric
Institute,
annual investment
in transmission
infrastructure
will reach
$14 billion
annually
by 2014.
In addition,
significant
investments
are projected
in natural
gas transmission
and distribution
infrastructure
as a result
of the increased
shale gas
production
in the U.S.
and Canada.
Transportation
infrastructure
will also
face similar
investment
dynamics,
and substantial
investments
in ports,
highways
and bridges.
These investments
will be
required
to replace
and upgrade
existing
infrastructure
and to develop
greenfield
infrastructure
to support
increased
urbanization
and changes
in demographics.
Many of
these infrastructure
investments
will be
funded by
private
enterprise
or by public-private
partnerships
(PPP) due
to cuts
in state
and federal
funding.
|
|
·
|
Substantial
Investment
Opportunities
in Renewable
Energy
.
According
to a report
published
by Bloomberg
New Energy
Finance,
approximately
$56 billion
of renewable
energy investments
were made
in the US
in 2011.
EIA projected
in its 2011
report that
renewable
energy,
including
hydroelectric
power, would
grow by
72% raising
its total
percentage
of generation
capacity
to 14%.
We expect
that future
growth in
generation
from renewable
energy will
be driven
primarily
by State
renewable
portfolio
standard
(RPS) requirements,
Federal
tax credits
and the
price declines
and performance
improvements
in solar
and wind
technologies
that are
making renewable
energy cost
competitive
with traditional
sources
of energy
in certain
parts of
the U.S.
|
|
o
|
Attractive
Market
Dynamics
.
The
renewable
energy
market
is
characterized
by
both
a
large
number
of
investment
opportunities
and
a
high
velocity
of
transactions,
as
developers
of
generating
facilities
are
often
temporary
owners
of
projects
and
institutional
investors
do
not
have
many
standardized
investment
offerings
to
gain
exposure
to
renewable
energy.
Due
to
the
large
volume
of
transactions
as
well
as
the
ongoing
state
of
flux
of
federal
and
local
incentives
for
renewable
energy
projects,
we
believe
there
will
be
a
significant
opportunity
to
selectively
invest
in
high
quality
transactions
and
generate
attractive
risk
adjusted
returns
for
our
shareholders.
|
|
o
|
Attractive
Industry
Structure:
Low
Water
Usage
and
Low
Correlation
to
Global
Commodity
Pricing
.
Although
the
environment
for
building
renewable
energy
projects
can
be
volatile,
renewable
energy
projects
that
are
constructed
enjoy
significant
advantages
over
traditional
energy.
Significantly,
the
operating
costs
of
renewable
energy
facilities
are
not
impacted
by
market
fluctuations
in
the
cost
for
fossil
fuels.
Further,
these
energy
facilities
typically
have
low
water
usage
when
compared
to
coal,
natural
gas
and
nuclear
power.
The
combination
of
lower
water
and
commodity
usage
results
in
a
low
correlation
to
global
demand
growth
for
water
and
energy
commodities.
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Competitive Strengths
We believe we distinguish ourselves from
our competitors through the following competitive strengths:
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Attractive
Partner
for Transportation
and Energy
Companies
.
We believe
our ability
to provide
creative
and, long-term
lease financing
solutions
makes us
a desirable
partner
for owners
and operators
of infrastructure
assets.
As a REIT,
we will
structure
long-term
leases that
are intended
to supplement
and be complimentary
to other
financing
provided
by capital
providers,
such as
commercial
lenders,
leasing
companies
and tax
oriented
investors.
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Efficient
Access to
Capital
.
As a public
real estate
investment
trust (REIT),
Power REIT
benefits
from access
to a broader
universe
of investors,
including
foreign
investors
and tax-exempt
pools of
capital
that typically
avoid direct
infrastructure
investments
or those
investments,
such as
master limited
partnerships,
that generate
unrelated
business
taxable
income (UBTI)
income.
As a result
of both
Power’
REIT’s
public listing
and its
structure
as a REIT,
we believe
that we
will be
able to
access lower
cost of
capital
than many
of our competitors,
allowing
us to competitively
price transactions
relative
to other
capital
providers.
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Flexible
Transaction
and UPREIT
Structuring
.
We are
not subject
to many
of the regulatory
limitations
that govern
traditional
lending
institutions
such as
commercial
banks. Furthermore,
we have
the ability
to utilize
umbrella
partnership
REIT (UPREIT)
contribution
transactions
to structure
transactions
that allow
sellers
who contribute
assets to
our UPREIT
the potential
to participate
in public
markets
valuations
and to sell
assets on
a tax-advantaged
or deferred
basis. As
a result,
we believe
we will
be able
to address
the concerns
and objectives
of a broader
range of
assets sellers.
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Established
REIT Operating
Platform
.
Power REIT
is an internally
managed,
public real
estate investment
trust that
is listed
on the NYSE
American
Stock Exchange
(“NYSE
Amex”).
Unlike our
private
competitors
that are
seeking
to implement
a REIT infrastructure
business
model, Power
REIT has
the advantage
of already
being public
and the
ability
to access
capital
and structure
UPREIT transactions.
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Experienced
Executive
Management
Team with
a Proven
Track Record
.
Collectively,
our executive
management
team has
40 years
of experience
in investment
banking,
energy,
capital
markets
and creating
shareholder
value in
public real
estate investments.
Power REIT
is led by
David H.
Lesser who
serves as
our Chairman
and Chief
Executive
Officer.
Mr. Lesser
has significant
experience
with real
estate and
real estate
securities
having served
as a Director
of Investment
Banking
at Merrill
Lynch &
Co in the
real estate
finance
group and
as a Senior
Vice President
of Crescent
Real Estate
Equities
(NYSE: CEI).
In 1995,
Mr. Lesser
formed Hudson
Bay Partners,
LP (“HBP”),
an investment
firm focused
on real
estate,
real estate-related,
and alternative
energy opportunities.
In 1997,
Mr. Lesser,
as president
of HBP,
led an investor
group that
conducted
a reverse
merger transaction
with American
Real Estate
Investment
Corporation
(AMEX: REA)
leading
ultimately
to the formation
of Keystone
Property
Trust (NYSE:
KTR) (“Keystone”).
The transaction
involved
an investment
of $30 million
of cash,
the merger
of a property
management
company
and the
acquisition
of a family
owned portfolio
of industrial
properties
for ownership
in the REIT.
In addition
to the initial
structuring
and the
equity investment
by HBP,
Mr. Lesser
served on
Keystone’s
board of
trustees
until June
2000. Keystone
was acquired
by Prologis
(NYSE: PLD)
in 2004
for a total
enterprise
value of
$1.4 billion
and delivering
a compound
annual shareholder
return of
16.5% from
the initial
transaction.
Power REIT’s
business
plan is
similar
to Keystone’s
original
business
plan: create
shareholder
value through
acquisitions
that grow
funds from
operations
and dividends
per share.
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Management
Team’s
Interests
are Aligned
with Shareholders
.
As an internally
managed
REIT, we
believe
that Power
REIT has
fewer conflicts
of interests
and better
alignment
compared
to externally
managed
REITs and
MLPs. In
addition,
collectively,
our management
team and
trustees
own approximately
10% of our
common shares
as of March
31, 2012
and are
motivated
to create
shareholder
value as
shareholders
of the company.
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Our Investment Property
Power REIT’s current investment consists
of its wholly owned subsidiary, Pittsburgh & West Virginia Railroad, a Pennsylvania business trust, which has leased the entirety
of its railroad property to Norfolk Southern Corporation. The railroad property consists of 112 miles of main line railroad extending
from Pittsburgh Junction, Ohio, through parts of West Virginia, to Connellsville, Pennsylvania and approximately 20 miles of branch
rail lines and real estate used in the operation of the railroad. There is no mortgage, encumbrance or other restrictions on the
railroad real estate, other than those restrictions imposed by the lease with Norfolk Southern Corporation. The lease with Norfolk
Southern Corporation is a 99-year lease that provides us with $915,000 of base cash rent annually with no escalation and is renewable
along the same terms for unlimited 99-year renewal terms.
Our railroad asset has many of the characteristics
of the types of assets that we are seeking to acquire: it is a hard to replace asset, we own the property in fee-simple and we
have a strong lessee who has a high quality credit rating and who is leasing the railroad asset from us under terms that make
it unlikely that they will seek to cancel the lease and/or stop paying rent.
Corporate Structure and UPREIT Reorganization
We are currently organized as a REIT holding
company, with a single wholly owned subsidiary. Power REIT intends to acquire and finance additional investments assets through
the formation of additional special purpose subsidiaries. We believe the creation of individual, special purpose asset subsidiaries
will provide us with greater flexibility in financing our assets and may help us segregate risks within our investment portfolio.
Provided we succeed in moving forward with
our financing and acquisition strategies, Power REIT intends to form an UPREIT (“Operating Partnership” or “Power
UPREIT”), which is a common form of organization for many equity REITs in the U.S. At such time, we expect to contribute
the shares of Pittsburgh & West Virginia Railroad and any other special purpose asset ownership, to our Operating Partnership
in exchange for Operating Units (“OP Units”) in the Operating Partnership (the “UPREIT Reorganization”).
Power REIT intends to manage the Operating Partnership. Following our UPREIT transaction, substantially all of our operations
will be carried out through our Operating Partnership and its special purpose subsidiaries. The following diagram describes our
existing ownership structure and our ownership structure upon completion of the UPREIT Reorganization.
Financing and Acquisition Strategies
The primary objective of our financing
strategy is to create a stable capital structure that allows us to address the varying needs of infrastructure sellers, developers
and landowners.
We intend to employ prudent amounts of
leverage as a means of providing additional funds to acquire properties and for general corporate purposes. At March 31, 2012,
the outstanding principal amount of our consolidated debt was equal to 0% of our total enterprise value. We intend to target this
ratio to no more than 50%, although our organizational documents contain no limitations regarding the maximum level of debt that
we may incur and we may exceed this amount from time to time.
Further, we intend to access various sources
of equity capital, including the public markets, contributors of assets in exchange for OP Units in our to-be-formed Operating
Partnership, and private institutional investors, including but not limited to, private equity firms, pension funds and insurance
companies. In certain cases, we may form joint ventures to share the risk of ownership or development, or to provide us with a
source of future transaction or development opportunities.
We believe that we have a unique acquisition
strategy within the infrastructure industry that will allow us to invest in infrastructure assets in an increasingly competitive
market. Through the utilization of an umbrella partnership REIT (“UPREIT”), we believe we will have significant flexibility
in structuring acquisition transactions that will meet certain tax objectives of infrastructure sellers. The UPREIT structure
also enhances our ability to structure transactions that require economic and operating partnerships and/or joint ventures. The
UPREIT structure has been utilized extensively in the real estate investment trust industry to acquire and finance $100s of billions
of real estate transactions; we believe Power REIT is the first public REIT to implement this structure for the financing and
acquisition of infrastructure assets.
Management Team
Power REIT currently has no employees and
is currently managed by its two officers, David H. Lesser, who is the Chairman of the Board of Trustees and our Chief Executive
Officer and Arun Mittal, our Secretary and Treasurer, who also serves as our Vice President of Business Development. Our CEO currently
receives no salary or other compensation and our Secretary and Treasurer currently provides Power REIT with accounting, administrative
and business development services pursuant to a consulting agreement that pays a company affiliated to him a base monthly consulting
fee of $7,500 per month. Other than this base consulting fee, our Secretary and Treasurer does not receive other salary or other
compensation from Power REIT. Power REIT is an internally managed REIT and over time, it intends to institute appropriate compensation
policies for Messrs. Lesser and Mittal and hire additional employees and/or consultants and pay salaries, bonuses and/or long-term
incentive compensation to its management team and employees.
See “Management.”
Restrictions on Ownership and Transfer
In order to assist us in complying with
the limitations on the concentration of ownership of REIT stock imposed by the Internal Revenue Code of 1986, as amended (the
“Code”), among other purposes, our amended and restated Declaration of Trust (“Declaration of Trust”)
provides that no person or entity, may own, directly or indirectly, more than 9.9% in economic value of the aggregate of the outstanding
common shares of Power REIT. However, our Declaration of Trust authorizes our Board of Trustees to exempt from time to time, the
ownership limits applicable to certain individuals or entities.
Our Declaration of Trust also prohibits
any person from (1) beneficially or constructively owning shares of our capital stock that would result in our being “closely
held” under Section 856(h) of the Code at any time during the taxable year, (2) transferring shares of our capital stock
if such transfer would result in our stock being beneficially or constructively owned by fewer than 100 persons, and (3) beneficially
or constructively owning shares of our capital stock if such ownership would cause us otherwise to fail to qualify as a REIT.
This provision or other provisions in our
governing documents or provisions that we may adopt in the future, may limit the ability of our shareholders to sell their shares
at a premium over then-current market prices by discouraging a third party from seeking to obtain control of us. See “Risk
Factors” and “Description of Securities.”
Distribution Policy
We intend to make regular quarterly distributions
to holders of our common shares. The dividend rate was $0.10 per share per quarter during the past 12-month period. Distributions
declared by us will be authorized by our Board of Trustees in its sole discretion out of funds legally available therefor and
will be dependent upon a number of factors, including the capital requirements of our company and meeting the distribution requirements
necessary to maintain our qualification as a REIT. We cannot assure that our intended distributions will be made or sustained
or that our Board of Trustees will not change our distribution policy in the future. Under some circumstances, we may be required
to fund distributions from working capital, liquidate assets at prices or times that we regard as unfavorable or borrow to provide
funds for distributions, or we may make distributions in the form of a taxable stock dividend. However, we have no current intention
to use the net proceeds from this offering to make distributions nor do we intend to make distributions using shares of our common
stock. We do not intend to reduce the expected distribution per share if we issue the securities contemplated in this prospectus.
Summary Risk Factors
An investment in our securities involves
significant risks. You should consider carefully the risks discussed under “Risk Factors” beginning on page 9 of this
prospectus before purchasing our securities.
Tax Status
As a real estate investment trust, Power
REIT is not subject to state or federal income taxes. However, in order to maintain our REIT status, we are required to make distributions,
other than capital gain distributions, to our shareholders each year in the amount of at least 90% of our “REIT taxable
income”. Dividends that are paid from earnings and profits will be treated as ordinary income and generally will not qualify
as qualified dividend income. In addition to the aforementioned distribution requirement, we must meet numerous other asset and
income tests and other requirements of the Code; failure to meet any of these requirements or tests may result in us losing our
REIT status.
See “Material United States Federal
Income Tax Considerations.”
Exchange Listing
Power REIT’s common shares are listed
for trading on the NYSE Amex equities exchange under the symbol "PW." The volume-weighted closing price of Power REIT’s
common shares during the twelve months to March 5, 2012 was $11.34. Any preferred shares, rights, warrants or units that Power
REIT may offer may or may not be listed, as shall be disclosed in the supplements to this prospectus relating to the offering
of such securities.
The Offering
Securities to be Offered
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We
may from time to time offer and sell one or more of our
common shares, preferred shares, rights and warrants, either
separately or in various combinations in the form of units
or otherwise, in one or more series or classes, and in amounts,
at prices and on terms that will be determined prior to
the offering of the securities. In addition, certain of
our security holders may offer and sell such securities
on a secondary basis. We will describe the particulars of
each securities offering, and of the securities offered,
including among other things the expected trading market,
if any, for the securities, in a supplement to this prospectus
that we will distribute in connection with the offering.
The amount of securities we may
issue pursuant to the registration statement is limited to $100,000,000 of securities. Our Board of Trustees may, without
any action by our shareholders, increase or decrease the aggregate number of securities of any class or series that we
are authorized to issue pursuant to this registration statement or any future registration statements.
We, or certain of our security holders, may offer securities
directly to one or more purchasers, through agents that we or they designate from time to time, or to or through underwriters
or dealers. The prospectus supplement relating to the offering will identify any agents, underwriters or dealers
involved in the offering, and will set forth any applicable purchase price, fee, commission or discount arrangement with
such agents, underwriters or dealers and among such agents, underwriters or dealers or the basis upon which such amounts
may be calculated. See “Plan of Distribution.” Securities so offered by us or by selling
security holders may not be sold through agents, underwriters or dealers without delivery of a prospectus supplement describing
the methods and terms of the offering.
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Use of Proceeds
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Unless
otherwise specified in a prospectus supplement, we intend to use the
net proceeds from our sale of securities primarily to acquire real property
infrastructure assets, funding of our subsidiaries and to acquire OP
Units in our to-be-formed Operating Partnership, if any. We
also may use sale proceeds to retire all or a portion of any debt we
incur, to redeem any outstanding preferred stock, or for working capital
purposes, including the payment of distributions, interest and operating
expenses, although there is currently no intent to issue securities
primarily for this purpose. We will not receive proceeds from any sales
of securities by selling security holders. See “Use of Proceeds.”
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Dividends
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We
have historically paid, and intend to continue to pay, subject to adjustment
at the discretion of our Board of Trustees, quarterly distributions
to our shareholders.
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Available Information
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We
have filed with the SEC a registration statement under the
Securities Act with respect to the securities offered by
this prospectus. This prospectus does not contain all of
the information set forth in the registration statement,
its exhibits and the exhibits incorporated by reference
therein. Statements contained in this prospectus regarding
the contents of any contract or other document are not necessarily
complete and, in each instance, we refer you to the copy
of the contract or other document filed as an exhibit to
the registration statement or incorporated by reference
therein. Each of these statements is qualified in its entirety
by this reference.
We file annual, quarterly and current reports, proxy
statements and other information with the SEC. These SEC filings, as well as the registration statement referred to above
and the exhibits to each of the foregoing documents, are available to the public at the SEC’s website at
http://www.sec.gov
.
You may also read and copy any document or exhibit we file with the SEC at the SEC’s Public Reference Room at 100
F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0030 for additional information concerning the
operation of the Public Reference Room.
We will provide to each person to whom this prospectus
or a related prospectus supplement is delivered, at no cost to the requester, a copy of any or all of the documents we
have incorporated by reference but not delivered with the prospectus or prospectus supplement, or a copy of any of the
exhibits to or incorporated by reference in the registration statement to which this prospectus relates. To receive any
such copies, please write us at Power REIT, 55 Edison Avenue, West Babylon, NY 11704 or call us at (212) 750-0373. The
documents may also be accessed through our website at
http://www.pwreit.com
. Other than the information specifically
incorporated by reference, the information on, or otherwise accessible through, our website does not constitute a part
of this prospectus.
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RISK FACTORS
An investment in Power REIT’s securities involves
significant risks. Anyone who is making an investment decision regarding Power REIT’s securities should carefully consider
the following risk factors, together with all of the other information included in, or incorporated by reference into, this prospectus
and the accompanying prospectus supplement, before making that decision. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial may also have a material adverse effect on our business and operations. If any of the
matters included in the following risks were to occur, Power REIT’s business, financial condition, results of operations
or prospects could be materially adversely affected. In such case, you may lose all or part of your investment.
Risks Related to our Operations
Our business strategy includes growth plans. Our financial
condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth or investments
effectively.
Power REIT has limited operational history
as a REIT holding company and intends to pursue a growth strategy focused on infrastructure investments that qualify as real assets.
Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in significant
growth stages of development. General and administrative expenses, including expenses related to tax, legal and audit have been
increasing and expected to continue to increase due to the more complex organization of Power REIT and expenses related to growth.
We cannot assure you that we will be able to expand our market presence in our existing markets or successfully enter new markets
or that any such expansion will not adversely affect our results of operations. Failure to manage our growth effectively could
have a material adverse effect on our business, future prospects, financial condition or results of operations and could adversely
affect our ability to successfully implement our business strategy or pay a dividend.
We operate in a highly competitive market for investment
opportunities and we may be unable to identify and complete acquisitions of real property assets.
We compete with public and private funds,
commercial and investment banks, commercial financing companies and public and private REITs to make the types of investments
that we plan to make in the U.S. infrastructure sector. Many of our competitors are substantially larger and have considerably
greater financial, technical and marketing resources than us. For example, some competitors may have a lower cost of funds and
access to funding sources that are not currently available to us. In addition, some of our competitors may have higher risk tolerances
or different risk assessments, allowing them to pay higher consideration, consider a wider variety of investments and establish
more relationships than us. Furthermore, many of our competitors are not subject to the restrictions that our REIT status imposes
on us. These competitive conditions may adversely affect our ability to make investments in the infrastructure sector and could
adversely affect our distributions to stockholders. Our ability to close transactions will be subject to our ability to access
financing within stipulated contractual timeframes, and there is no assurance that we will have access to such financing on terms
that are favorable to us, if at all.
Because we expect to distribute substantially all of
our taxable income from investments to our stockholders or lenders,
we will continue to need additional capital
to make new investments. If additional
funds are unavailable or not available on favorable terms, our ability to
make new
investments will be impaired.
Our business will require a substantial
amount of new capital to achieve our growth plans since we plan to distribute substantially all of our taxable income from our
investments to shareholders in the form of dividends. We may acquire additional capital from the issuance of securities senior
to our common shares, including additional borrowings or other indebtedness, preferred shares or the issuance of additional securities
through our to-be-formed Operating Partners. We may also acquire additional capital through the issuance of additional common
shares. However, we may not be able to raise additional capital in the future on favorable terms or at all. Unfavorable economic
conditions could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to
extend credit to us.
We may issue debt securities, other instruments
of indebtedness or preferred stock, and we borrow money from banks or other financial institutions, which we refer to collectively
as “senior securities.” As a result of issuing senior securities, we will also be exposed to typical risks associated
with leverage, including increased risk of loss. If we issue preferred securities which will rank “senior” to our
common stock in our capital structure, the holders of such preferred securities may have separate voting rights and other rights,
preferences or privileges more favorable than those of our common stock, and the issuance of such preferred securities could have
the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for security
holders or otherwise be in our best interest.
Inability to access additional financing
on terms that are favorable to us may materially impact our business and ability to grow and may impact the market’s perception
of Power REIT and its share price.
We expect to seek additional funds by issuing additional
securities. Issuance of additional securities will result in dilution.
To the extent our ability to issue debt
or other senior securities is constrained, we will depend on issuances of additional common stock to finance new investments.
If we raise additional funds by issuing more of our common stock or senior securities convertible into, or exchangeable for, our
common stock, the percentage ownership of our stockholders at that time would decrease, and you may experience dilution.
Our investment portfolio is currently concentrated in
a single asset and in the future we may continue to have concentrated exposure to a small number of investments, industries or
lessees. Furthermore, we will continue to be subject to our current and future lessee’s financial condition.
Power REIT currently has a single investment
in its wholly owned subsidiary, Pittsburgh & West Virginia Railroad, which has been leased to Norfolk Southern Corporation,
our Railroad Lessee, under a long-term, triple-net lease. An economic slowdown may have a negative impact on the operations of
the Railroad Lessee due to possible downturns in its business. This negative impact could result in the Railroad Lessee’s
inability to make rental payments when due. The Railroad Lessee may seek the protection of bankruptcy, insolvency or similar laws,
which could result in the rejection and termination of such Lessee’s lease and cause a reduction in Pittsburgh & West
Virginia Railroad’s cash flow and adversely affect our financial condition.
As we grow, our portfolio may be concentrated
in a limited number of investments. An inherent risk associated with this investment concentration is that we may be adversely
affected if one or more of our investments perform poorly or if the fair value of any one investment decreases. Financial difficulty
or poor business performance on the part of any single lessee or the default on any single lease will expose us to a greater risk
of loss than would be the case if we were “diversified”. Further, we intend to concentrate our investment activities
in the infrastructure sector, including energy and transportation, which will subject us to more risks than if we were broadly
diversified across sectors. At times, the performance of the infrastructure sector may lag the performance of other sectors or
the broader market as a whole.
We are currently involved in litigation with our lessee
and its sub-lessee which could have a material impact on our business.
We are involved in litigation with our
lessee and its sub-lessee with respect to certain contractual provisions of our lease agreement. By initiating the litigation,
Norfolk Southern Corporation is seeking to preserve the lease and past practices related thereto. Norfolk Southern Corporation
has continued to make timely quarterly payments of the base cash rent ($915,000 per annum). We believe our primary exposure in
the litigation is to Pittsburgh & West Virginia Railroad’s ongoing legal expense, which it believes is reimbursable
by Norfolk Southern Corporation pursuant to the lease. There can be no assurance that Pittsburgh & West Virginia Railroad
will prevail with its defenses or counterclaims or that Power REIT will prevail with its motion to dismiss. There can be no assurance
that Pittsburgh & West Virginia Railroad will prevail with any claims for reimbursement of its expenses. There can be no assurance
that Norfolk Southern Corporation will continue to make lease payments to us. Any of these events could have a material impact
on our business. See “Legal Proceedings.”
Legislative, regulatory, accounting or tax changes or
actions, could adversely affect us, the infrastructure industry or the REIT industry. Costs of complying with governmental laws
and regulations or responding to proceedings alleging violations of such laws or regulations, including those relating to environmental
matters, may adversely affect our income and the cash available for distribution.
If the laws, regulations or other administrative
decisions that impact us change, we may have to incur significant expenses in order to comply, or we may have to restrict our
operations. Actions by regulatory agencies or significant litigation against us or by us could require us to devote significant
time and resources to defending our business and may lead to penalties that materially affect us and our shareholders. Proposed
changes to the accounting treatment of leases by both lessors and lessees under U.S. GAAP may adversely impact our financial statements
and our growth plans. Changes to IRS interpretations of “real assets” or the changes to the REIT code could impact
our business plans, operations, financial condition or share price.
We have invested, and expect to continue
to invest, in real property assets, which are subject to laws and regulations relating to the protection of the environment and
human health and safety. These laws and regulations generally govern wastewater discharges, noise levels, air emissions, the operation
and removal of underground and aboveground storage tanks, the use, storage, treatment, transportation and disposal of solid and
hazardous materials, and the remediation of contamination associated with disposals. Environmental laws and regulations may impose
joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties,
regardless of fault or whether the acts causing the contamination were legal. This liability could be substantial. In addition,
the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability
to sell, rent or pledge such property as collateral for future borrowings.
Some of these laws and regulations have
been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more
stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. Future laws,
ordinances or regulations may impose material environmental liability. Additionally, our tenant companies’ operations, the
existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage
tanks, or activities of unrelated third parties may affect our properties. In addition, there are various local, state and federal
fire, health, life-safety and similar regulations with which we may be required to comply, and that may subject us to liability
in the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we must pay will reduce our ability
to make distributions.
State and federal laws in this area are
constantly evolving, and we intend to monitor these laws and take commercially reasonable steps to protect ourselves from the
impact of these laws, including where deemed necessary, obtaining environmental assessments of properties that we acquire; however,
we will not obtain an independent third-party environmental assessment for every property we acquire. In addition, any such assessment
that we do obtain may not reveal all environmental liabilities or whether a prior owner of a property created a material environmental
condition not known to us. The cost of defending against claims of liability, of compliance with environmental regulatory requirements,
of remediating any contaminated property, or of paying personal injury claims would materially adversely affect our business,
assets or results of operations and, consequently, amounts available for distribution.
Changes in interest rates may negatively affect the value
of our assets and the trading price of our stock.
Our investments in certain assets will
generally decline in value if long-term interest rates increase. If interest rates were to rise from their current historically
low levels, it may affect the market perceived or actual value of our assets and/or dividends and consequently our stock price
may decline in value.
If our acquisitions do not meet our performance expectations,
the cash available to meet company obligations and dividends may be impaired.
We intend to make distributions on a quarterly
basis to our stockholders out of assets legally available for distribution. We may not be able to achieve operating results that
will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. Also,
restrictions and provisions in any credit facilities we enter into or debt securities we issue may limit our ability to make distributions.
We cannot assure you that you will receive distributions at a particular level or at all.
Our quarterly results may fluctuate.
We could experience fluctuations in our
quarterly operating results due to a number of factors, including the return on our current or future investments, including any
future investments with gross revenue participation rent provisions, the interest rates payable on our debt investments, the default
rates on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized
gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these
factors, results for any period should not be relied upon as being indicative of performance in future periods.
We may fail to remain qualified as a REIT, which would
reduce the cash available for distribution to our shareholders and may have other adverse consequences.
Qualification as a REIT for federal income
tax purposes is governed by highly technical and complex provisions of the U.S. Internal Revenue Code for which there are only
limited judicial or administrative interpretations, including interpretation of lease agreements with our lessees, which may contain
complex tax indemnification and non-cash payment provisions. Our qualification as a REIT also depends on various facts and circumstances
that are not entirely within our control. In addition, legislation, new regulations, administrative interpretations or court decisions
might change the tax laws with respect to the requirements for qualification as a REIT or the federal income tax consequences
of qualification as a REIT.
If, with respect to any taxable year, we
were to fail to maintain our qualification as a REIT, we would not be able to deduct distributions to our shareholders in computing
our taxable income and would have to pay federal corporate income tax (including any applicable alternative minimum tax) on our
taxable income. If we had to pay federal income tax, the amount of money available to distribute to our shareholders would be
reduced for the year or years involved. In addition, we would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification was lost and thus our cash available for distribution to our shareholders would
be reduced in each of those years, unless we were entitled to relief under relevant statutory provisions. Failure to qualify as
a REIT could result in additional expenses or additional adverse consequences, which may include the forced liquidation of some
or all of our investments.
Although we currently intend to operate
in a manner designed to allow us to continue to qualify as a REIT, future economic, market, legal, tax or other considerations
might cause us to revoke or lose our REIT status, which could have a material adverse effect on our business, future prospects,
financial condition or results of operations and could adversely affect our ability to successfully implement our business strategy
or pay a dividend.
We may not be able to sell our real property asset investments
when we desire.
In particular, in order to maintain our status as a REIT, we may be forced to borrow funds or sell
assets during unfavorable market conditions.
Investments in real property assets are
relatively illiquid compared to other investments. Accordingly, we may not be able to sell real property asset investments when
we desire or at prices acceptable to us in response to changes in economic or other conditions. This could substantially reduce
the funds available for satisfying our obligations, including any debt or preferred share obligations, and for distribution to
our common shareholders.
As a REIT, we must distribute at least
90% of our annual REIT taxable income, subject to certain adjustments, to our shareholders. To the extent that we satisfy the
REIT distribution requirement but distribute less than 100% of our taxable income, we will be subject to federal corporate income
tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount
that we pay to our shareholders in a calendar year is less than a minimum amount specified under federal tax laws. In addition
to applicable federal taxation, we may be subject to additional state taxation.
From time to time, we may have taxable
income greater than our cash flow available for distribution to our shareholders (for example, due to substantial non-deductible
cash outlays, such as capital expenditures or principal payments on debt). If we did not have other funds available in these situations,
we could be required to borrow funds, sell investments at disadvantageous prices or find alternative sources of funds to make
distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and
to avoid income and excise taxes in a particular year. These alternatives could increase our operating costs and diminish our
available cash flow, sustainable future cash flow or future ability to grow.
If an investment that was initially believed to be a
real property asset is later deemed not to have been a real property asset at the time of investment, we could lose our status
as a REIT or be precluded from investing according to our current business plan.
Power REIT must meet income and asset tests
to qualify as a REIT. If an investment that was originally believed to be a real asset is later deemed not to have been a real
asset at the time of investment, our status as a REIT may be jeopardized or we may be precluded from investing according to our
current business plan, either of which would have a material adverse effect on our business, financial condition and results of
operations. Further, we may not seek a private letter ruling from the IRS with respect to some or all of our infrastructure investments,
the lack of such private letter rulings may increase the risk that an investment believed to be a real asset, could later be deemed
not to be a real asset. In the event that an investment is deemed to not be a real asset, we may be required to dispose of such
investment, which could have a material adverse effect on us and our shareholders, because even if we were successful in finding
a buyer, we may have difficulty in finding a buyer to purchase such investment on favorable terms or in a sufficient timeframe.
If we were deemed to be an investment company under the
Investment Company Act of 1940, applicable restrictions could make it impractical for us to continue our business as contemplated
and could have a material adverse effect on our business and the price of our securities.
A company such as
ours would be considered an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”),
if, among other things, it owned investment securities (including minority ownership interests in subsidiaries or other entities)
that have an aggregate value exceeding 40% of the value of its total assets on an unconsolidated basis, or it failed to qualify
under the exemption from investment company status available to companies primarily engaged in the business of purchasing or otherwise
acquiring mortgages and other liens on and interests in real estate.
We do not believe
that we are, or are likely to become, an investment company under the 1940 Act. Nevertheless, if we were to be deemed an investment
company, restrictions imposed by the 1940 Act, including limitations on our capital structure, could make it impractical for us
to continue our business as contemplated and would have a material adverse effect on our operations and the price of our common
stock.
Net leases may not result in fair market lease rates
over time.
We expect a portion of our future income
to come from net leases, whereby the lessee is responsible for all the costs, insurance and taxes of a property, including maintenance.
Net leases typically have longer lease terms and, thus, there is an increased risk that if market rental rates increase in future
years, the rates under our net leases will be less than fair market rental rates during those years. As a result, our income and
distributions could be lower than they would otherwise be if we did not engage in net leases. When appropriate, we will seek to
include a clause in each lease that provides increases in rent over the term of the lease, but there can be no assurance we will
be successful in obtaining such a clause. Some of our investments may include a percentage of gross revenue lease payment, which
may result in positive or negative outcomes depending on the performance of the acquired asset.
If a sale-leaseback transaction is re-characterized in
a lessee’s bankruptcy proceeding, our financial condition could be adversely affected.
In certain cases, we intend to enter into
sale-leaseback transactions, whereby we purchase a property and then simultaneously lease the same property back to the seller.
In the event of the bankruptcy of a lessee company, a transaction structured as a sale-leaseback may be re-characterized as either
a financing or a joint venture, either of which outcomes could adversely affect our business. If the sale-leaseback were re-characterized
as a financing, we might not be considered the owner of the property, and as a result would have the status of a creditor in relation
to the lessee company. In that event, we would no longer have the right to sell or encumber our ownership interest in the property.
Instead, we would have a claim against the lessee company for the amounts owed under the lease, with the claim arguably secured
by the property. The lessee company/debtor might have the ability to restructure the terms, interest rate and amortization schedule
of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms, and prevented from foreclosing
our lien on the property. If the sale-leaseback were re-characterized as a joint venture, we and the lessee company could be treated
as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred
by the lessee company relating to the property. Either of these outcomes could adversely affect our cash flow and the amount available
for distribution.
Some losses related to our real property assets may not
be covered by insurance and would adversely impact distributions to stockholders.
Our new leases will generally require the
tenant company to carry comprehensive liability and casualty insurance on our properties comparable in amounts and against risks
customarily insured against by other companies engaged in similar businesses in the same geographic region as our tenant company.
We believe the required coverage will be of the type, and amount, customarily obtained by an owner of similar properties. However,
there are some types of losses, such as catastrophic acts of nature, acts of war or riots, for which we or our tenants cannot
obtain insurance at an acceptable cost. If there is an uninsured loss or a loss in excess of insurance limits, we could lose both
the revenues generated by the affected property and the capital we have invested in the property if our tenant company fails to
pay us the casualty value in excess of such insurance limit, if any, or to indemnify us for such loss. This would in turn reduce
the amount of income available for distributions. We would, however, remain obligated to repay any secured indebtedness or other
obligations related to the property. Since September 11, 2001, the cost of insurance protection against terrorist acts has risen
dramatically. The cost of coverage for acts of terrorism is currently mitigated by the Terrorism Risk Insurance Act (“TRIA”).
If TRIA is not extended beyond its current expiration date of December 31, 2014, our tenants may incur higher insurance costs
and greater difficulty in obtaining insurance that covers terrorist-related damages. There can be no assurance our tenant companies
will be able to obtain terrorism insurance coverage, or that any coverage they do obtain will adequately protect our properties
against loss from terrorist attack.
We will be dependent upon key personnel for our future
success.
We will be dependent on the diligence,
expertise and business relationships of our management team to implement our strategy of acquiring real property assets, including
in particular David Lesser, our CEO, and Arun Mittal, our Vice President of Business Development. Our management team may have
other business interests that are unrelated to Power REIT, or which may conflict with Power REIT, and to which they may dedicate
a portion of their time. The departure of one or more members of our team could have a material adverse effect on our ability
to implement this strategy and on the value of our common stock. There can be no assurance that we will be successful in implementing
our strategy.
Our management team may own interests in our lessees
and may have interests that conflict or appear to conflict with those of the Company.
On occasion, our management team may have
financial interests in our lessees. Although, our Declaration of Trust permits this type of business relationship and a majority
of the disinterested trustees must approve any such transaction, there may be material conflicts of interest between Power REIT
on one hand, and our management team on the other hand, and these conflicts may be unfavorable to us.
Provisions of the Maryland General Corporation Law and
our Declaration of Trust and By-laws could
deter takeover attempts and have an adverse impact on the price of our
common stock.
The Maryland General Corporation Law and
our Declaration of Trust and By-laws contain provisions that may have the effect of discouraging, delaying or making difficult
a change in control in Power REIT. The business combination provisions of Maryland law (if our Board of Trustees decides to make
them applicable to us), the control share acquisition provisions of Maryland law (if the applicable provisions in our Bylaws are
rescinded), the limitations on removal of Trustees, the restrictions on the acquisition of our shares of beneficial interest,
the power to issue additional shares and the advance notice provisions of our Bylaws could have the effect of delaying, deterring
or preventing a transaction or a change in the control that might involve a premium price for holders of the common shares or
might otherwise be in their best interest.
In order to assist us in complying with
the limitations on the concentration of ownership of REIT stock imposed by the Internal Revenue Code of 1986, as amended, or the
Code, among other purposes, our charter provides that no person or entity, may own, directly or indirectly, more than 9.9% in
economic value of the aggregate of the outstanding common shares of Power REIT. In addition, our Board of Trustees may, without
stockholder action, authorize the issuance of shares of stock in one or more classes or series, including preferred stock. See
“Description of Securities.” Our Board of Trustees may, without stockholder action, amend our charter to increase
the number of shares of stock of any class or series that we have authority to issue. The existence of these provisions, among
others, may have a negative impact on the price of our common stock and may discourage third party bids for ownership of our Company.
These provisions may prevent any premiums being offered to you for our common stock.
Risks Related to Our Infrastructure Investment Strategy
Our focus on the energy and transportation infrastructure
sectors will subject us to more risks than if we were broadly diversified to include other asset classes.
Because we specifically focus on infrastructure
assets, investments in our common stock may present more risks than if we were broadly diversified over numerous sectors of the
economy. Therefore, a downturn in the U.S. energy and/or transportation infrastructure sector would have a larger impact on us
than on a company that does not concentrate in one sector of the economy. Factors that may impact our investments include, but
are not limited to, changes in supply and demand for infrastructure consumption, price of national and global commodities, government
regulation, world and regional events and economic conditions.
Infrastructure assets may be subject to extensive regulation.
Energy and transportation infrastructure
assets are subject to significant federal, state and local government regulation, including how facilities are constructed, maintained
and operated, environmental and safety controls, and the prices they may charge for the products and services they provide. Various
governmental authorities have the power to enforce compliance with these regulations and the permits issued under them, and violators
are subject to administrative, civil and criminal penalties, including civil fines, injunctions or both. Stricter laws, regulations
or enforcement policies could be enacted in the future that likely would increase compliance costs and may adversely affect the
financial performance of our lessees and indirectly on the performance of our investments.
Although, our lessee operators will generally
be required to manage the regulatory risks related to operations of our infrastructure assets, failure on the part of our lessees
to manage these regulatory risks or inadequate insurance coverage by our lessees, may expose Power REIT to risks or costs that
we did not foresee and could materially impact our financial performance.
Infrastructure assets may be subject to the risk of fluctuations
in
commodity prices and in the supply and demand of infrastructure consumption.
The operations and financial performance
of companies in the infrastructure sector may be directly or indirectly affected by commodity prices and/or fluctuations in infrastructure
supply and demand. Commodity prices and infrastructure demand fluctuate for several reasons, including changes in market and economic
conditions, the impact of weather on demand or supply, levels of domestic production and imported commodities, energy conservation,
domestic and foreign governmental regulation and taxation and the availability of local, intrastate and interstate transportation
systems. Fluctuations in commodity prices may increase costs for consumers of infrastructure assets and therefore reduce demand
for the consumption of infrastructure. Further, extreme price fluctuation upwards or downwards may lead to the development of
alternatives to existing infrastructure and may impair the value of our investments.
Volatility of commodity prices or supply
and demand of infrastructure assets may make it more difficult for companies in the infrastructure sector to raise capital to
the extent the market perceives that their performance may be tied directly or indirectly to commodity prices. Historically, commodity
prices have been cyclical and exhibited significant volatility. Should infrastructure companies experience variations in supply
and demand as described above, the resulting decline in operating or financial performance could impact the value or quality of
our assets.
Infrastructure investments are subject to obsolescence
risks.
Infrastructure assets are subject to obsolescence
risks that could occur as a result of changing supply and demand that could be the result of new construction, changing demographics,
changing weather patterns and new technologies. In the event that any of these events occur, there may be few alternative uses
for our investments, and our investments may drop in value.
Additional Risks Related to Renewable Energy Investments
Renewable energy investments are impacted by variations
in weather patterns.
Renewable energy investments may be subject
to variations in weather patterns, including shifting wind or solar resources, which will cause earnings volatility for our lessees
or borrowers and which may impact their ability to make lease or other contractual payments to us. Lease payments that are structured
as a percentage of gross revenue will fluctuate from period to period. Although we believe that these fluctuations will average
out over time, to the extent that our projections are incorrect or weather patterns change significantly, our investments and
actual realized cash-flows may be adversely impacted.
Renewable energy resources are complex and our investments
in them will rely on long-term projections of resource and equipment availability and capital and operating costs; if our or our
lessees’ projections are incorrect, we may suffer losses.
Although the projection of renewable energy
resource availability has been analyzed for decades across different geographies, technologies and topologies, the ultimate long-term
projections of renewable resource availability at a particular site and the availability of generating equipment or the operating
costs to harvest such renewable energy are subject to various uncertainties and relay on best-estimate projections. If these projections
are materially incorrect, our lessees may suffer financial losses, which may impact our investments. Investments that are based
on a percentage of gross revenue may also under perform our investment projections, leading to potential losses, which may impact
cash-flow available for distribution to our shareholders and our stock price.
If new development of renewable energy projects slows,
we may have a harder time sourcing investments.
Renewable energy projects are dependent
on a variety of factors, including state Renewable Portfolio Standards (RPS), equipment costs and federal and state incentives.
Changes in some or all of these items could result in reduced construction of renewable projects and may make it harder for us
to source investments that are attractive to us, and this may have an adverse impact on our ability to increase our revenue and
grow our business. Volatility in the project development and construction may result in uneven growth and may make it hard to
predict with certainty our growth trends or patterns, which may make our stock less appealing to investors.
Investments in renewable energy may be dependent on equipment
and/or manufacturers that have limited operating histories or financial or other challenges.
Although most wind, solar and other renewable
energy projects utilize technology that is well understood by the market, many of technologies are undergoing rapid change and
improvement and many have not been tested in operating environments for the expected durations of our investments. Some manufacturers
are new or relatively new and may not have the financial ability to support their extended warranties. As a result, if future
performance of equipment that is the source of our lessee’s revenues is lower than projected, our lessees may have difficulty
in making lease payments to us and our business may suffer.
Most of our renewable energy lessees will be structured
as special purpose vehicles and their ability to pay us lease or interest payments are expected to be dependent solely on the
revenues of a specific project without additional credit support.
Most of our lessees will be structured
with counterparties that are special purpose vehicles (“SPV”), whose only source of cash-flow is from the operations
of a single energy facility. If the energy facility fails to perform as projected, the SPV lessee may not have sufficient cash-flow
to make lease or interest payments to us. While we expect the lender to such SPV lessee to step in and continue to make payments
to us, there is no assurance that such lenders will not liquidate the equipment. Further, if the project materially underperforms
and/or if revenue contracts are breached and therefore are cancelled, there may be little value in our SPV lessees and our investment
may become impaired.
Risks Related to the UPREIT Reorganization
The timing of the UPREIT Reorganization is not known.
Although it is currently expected that
we will complete the UPREIT Reorganization at such time as we complete our first asset contribution transaction or when we raise
private capital, there can be no assurance as to the timing of the UPREIT Reorganization or that the UPREIT Reorganization will
occur at all. Delays or non-consummation of the UPREIT Reorganization may impact our business plans, our ability to access financing
or transactions, future results, and market perception.
The UPREIT Reorganization will result in most of our
assets being held by the Operating Partnership, and our ability to make dividends will be dependent on Operating Partnership distributions.
Because Power REIT expects to form an Operating
Partnership and generally conduct its operations and hold its assets through the Operating Partnership, Power REIT’s ability
to service its debt obligations and its ability to pay dividends on its common and preferred shares will be strictly dependent
upon the earnings and cash flows of the Operating Partnership and the ability of the Operating Partnership to make distributions
to Power REIT. Under the Delaware Revised Uniform Limited Partnership Act, the Operating Partnership will be prohibited from making
any distribution to Power REIT to the extent that at the time of the distribution, after giving effect to the distribution, the
total liabilities of the Operating Partnership (other than some non-recourse liabilities and some liabilities to the partners)
would exceed the fair market value of the assets of the Operating Partnership.
In addition, limited partnership interests
or other securities issued by our to-be-formed Operating Partnership may have a senior priority on cash-flow or liquidation proceeds
generated by the Operating Partnership. To the extent, the Operating Partnership is unable to make cash distributions to Power
REIT, Power REIT may be forced to issue additional equity or debt, at unfavorable terms, to maintain compliance with IRS rules
that require it to distribute 90% of its taxable income to its shareholders. If Power REIT is unable to make such distributions,
it may lose its REIT status.
Transactions for contributions of assets to the UPREIT
may have to be structured in a manner that inhibits Power REIT from selling properties or retiring debt, contrary to the best
interest of Power REIT.
To ensure that the sellers of properties
are able to contribute properties to the Operating Partnership on a tax-deferred basis, the seller of such properties may require
Power REIT to agree to maintain a certain level of minimum debt at the Operating Partnership level and refrain from selling such
properties for a period of time. Adoption of the UPREIT structure, therefore, could inhibit Power REIT from selling properties
or retiring debt that would otherwise be in the best interest of Power REIT.
The interest of Power REIT in the Operating Partnership
may be diluted upon the issuance of additional OP Units of the Operating Partnership.
Upon the issuance of OP Units of the Operating
Partnership, the interest of Power REIT (and therefore that of Power REIT’s shareholders) in the assets of the partnership
would be diluted. This dilutive effect would remain if OP Units were redeemed for cash (which may be funded through newly issued
Power REIT common shares) or for Power REIT shares, even though Power REIT’s interest in the Operating Partnership would
increase if OP Units were redeemed for stock or cash. The dilutive effect from property acquisitions in exchange for OP Units
of the Operating Partnership would be comparable to that from sales of shares of Power REIT shares to fund acquisitions.
In certain circumstances, the interests of Power REIT
may conflict with the interests of the other limited partners of the Operating Partnership.
Power REIT as the manager of the Operating
Partnership would owe a fiduciary obligation to the limited partners upon the admission of additional partners to the Operating
Partnership. In most cases, the interests of the partners would coincide with the interests of Power REIT and its shareholders
because (a) Power REIT would own a substantial amount of the interests in the Operating Partnership and (b) the other partners
will generally receive shares of Power REIT’s common stock or cash proceeds tied to the share price of Power REIT common
stock upon redemption of their Operating Partnership OP Units. Under certain circumstances, however, the rights and interests
of the other partners might adversely conflict with those of Power REIT’s shareholders. For example, the sale of certain
properties by Power REIT or the sale or merger of Power REIT could cause adverse tax consequences to particular limited partners
and therefore, the Operating Partnership, may be contractually prohibited from the sale of those properties.
Conflicts of interest may arise between holders of Power
REIT common stock and holders of partnership interests in Power REIT’s Operating Partnership.
Power REIT’s trustees and officers
have duties to Power REIT and to Power REIT shareholders under Maryland law in connection with their management of Power REIT.
At the same time, Power REIT will have fiduciary duties under Delaware law to the Operating Partnership and to the partners in
connection with the management of the Operating Partnership. Power REIT’s duties as manager of the Operating Partnership
and its partners may come into conflict with the duties of Power REIT’s trustees and officers to Power REIT and Power REIT
shareholders.
The UPREIT structure may increase the general and administration
costs of managing the Company and the operational complexity and risk of the Company’s corporate structure.
By establishing a partnership subsidiary,
Power REIT may incur more costs than it is currently subject to, including professional expenses related to general G&A, accounting,
tax consulting, audit and legal costs. Although, we believe our business plan and future expected growth will make up for any
increase in G&A expenses, there can be no assurance that such business plan will come to fruition or whether any such increase
in revenues will offset any increase in G&A expenses. Increased complexity in our corporate structure may introduce other
operational risks that do not currently exist and cannot reasonably be projected, and which risks may have a material impact on
our business, operations and/or financial condition.
Additional Risks to Holders of Our Common Shares
Factors may cause us to lose our NYSE Amex listing.
We could lose our listing on the NYSE Amex
depending on a number of factors, including failure to qualify as a REIT, or failure to meet the NYSE Amex ongoing listing requirements,
including those relating to the number of shareholders, the price of our common shares and the amount and composition of our assets.
Low trading volume in our common shares may increase
volatility and adversely affect pricing. The sales of our common stock may put pressure on our stock price.
The average daily trading volume for our
common shares is less than larger institutions. During the 12 months to March 31, 2012, the average daily trading volume for our
common shares on the NYSE Amex was approximately 3,800 shares per day. Due to its relatively small trading volume, it may be difficult
for holders to sell their common shares at prices or at times that they find attractive, or at all. Further, the sale of our common
shares (or the perception that such sales may occur) by us or a large shareholder may have an adverse effect on prices in the
secondary market for our common shares. An increase in the number of our common shares available may put downward pressure on
the market price for our common shares and may make it more difficult for us to sell additional equity securities in the future
at a time and price we deem appropriate.
The price of our common shares may fluctuate significantly
and this may make it difficult for you to sell our securities at prices you find attractive.
As a smaller market capitalization company,
the market value of our common shares will likely continue to fluctuate in response to a number of factors, most of which are
beyond our control. The market value of our common shares may also be affected by conditions affecting the financial markets generally,
including the recent or increased volatility in the trading markets. These conditions may result in: (i) fluctuations in the market
prices of stocks generally and, in turn, our common shares; and (ii) sales of substantial amounts of our common shares in the
market, in each case to a degree that could be unrelated or disproportionate to any changes in our operating performance. Such
market fluctuations could adversely affect the market value of our common shares. A significant decline in our share price could
result in substantial losses for shareholders and could lead to costly and disruptive securities litigation.
Our use of leverage increases the risk of investing in
our securities and will increase the costs borne by common stockholders. Leverage may limit or prevent us from paying dividends
on our common shares. There is no limitation on the amount of preferred shares we may issue or indebtedness we may incur in the
future.
Power REIT common shares are equity interests.
As such, Power REIT common shares rank junior to any indebtedness and other non-equity claims with respect to assets available
to satisfy claims on Power REIT. Our use of leverage through the issuance of any preferred stock or debt securities, and any additional
borrowings or other transactions involving indebtedness are or would be considered “senior securities” and create
risks. Leverage is a speculative technique that may adversely affect common stockholders. If the return on securities acquired
with borrowed funds or other leverage proceeds does not exceed the cost of the leverage, the use of leverage could cause us to
lose money.
Our issuance of senior securities involves
offering expenses and other costs, including interest payments, which are borne indirectly by our common stockholders. Fluctuations
in interest rates could increase interest or dividend payments on our senior securities, and could reduce cash available for distribution
on common stock. Increased operating costs, including the financing cost associated with any leverage, may reduce our total return
to common stockholders.
Rating agency guidelines or contractual
covenants that may be applicable to any senior securities we may issue may impose asset coverage requirements, dividend limitations,
voting right requirements (in the case of the senior equity securities), and restrictions on our portfolio composition and our
use of certain investment techniques and strategies. These requirements may have an adverse effect on us and may affect our ability
to pay distributions on common stock and preferred stock.
In addition, lenders from whom we may borrow
money or holders of our debt securities may have fixed dollar claims on our assets that are superior to the claims of our stockholders,
and we may in the future grant, a security interest in our assets in connection with our debt. In the case of a liquidation event,
those lenders or note holders would receive proceeds before our stockholders. If the value of our assets increases, then leveraging
would cause the book value of our common stock to increase more than it otherwise would have had we not leveraged. Conversely,
if the value of our assets decreases, leveraging would cause the book value of our common stock to decline more than it otherwise
would have had we not leveraged. Similarly, any increase in our revenue in excess of interest expense on our borrowed funds would
cause our net income to increase more than it would without the leverage. Any decrease in our revenue would cause our net income
to decline more than it would have had we not borrowed funds and could negatively affect our ability to make distributions on
our common stock. Our ability to service any debt that we incur will depend largely on our financial performance and the performance
of our investments and will be subject to prevailing economic conditions and competitive pressures.
Senior securities typically have fixed
maturities, and we may not be able to refinance our senior securities with additional new senior securities or such new senior
securities may have higher interest rates or adverse terms compared to the maturing senior securities. If we are unable to issue
new senior securities to refinancing maturing senior securities, we may be required to liquidate investments or issue additional
common shares at a time when it would not otherwise be desirable to do so. If we are unable to, or even if we are able to, issue
common shares or liquidate investments, our common shares may be severely impaired.
If Power REIT issues preferred securities,
which will rank “senior” to Power REIT’s common shares in its capital structure, the holders of such preferred
securities may have separate voting rights and other rights, preferences or privileges more favorable than those of Power REIT’s
common shares, and the issuance of such preferred securities could have the effect of delaying, deferring or preventing a transaction
or a change of control that might involve a premium price for security holders or otherwise be in Power REIT’s best interest.
Unlike indebtedness, for which principal
and interest customarily are payable on specified due dates, in the case of Power REIT common shares, dividends are payable only
when, as and if declared by Power REIT’s board and depend on, among other things, Power REIT’s results of operations,
financial condition, contractual debt service and other lender imposed requirements, distributions received from the Operating
Partnership, other cash needs and any other factors Power REIT’s board may deem relevant or as required by law. Power REIT
may incur substantial amounts of additional debt and other obligations that will rank senior to its common shares and there is
no limit to the amount of debt that Power REIT may incur.
Additional Risks to Holders of Preferred Shares
We may not seek to establish a trading market for our
preferred shares, and in all events an active trading market for our preferred shares may not develop.
Currently, no public market exists for
preferred securities we may issue. We cannot assure you that one will develop or be sustained after this offering. We may choose
to not list our preferred stock on any national securities exchange or automated quotation system. If we do not list our preferred
stock, such stock will be subject to illiquidity and you may not be able to sell your investment in an orderly fashion, if at
all, and may not receive a favorable price, if you are able to sell.
Preferred stock may be subject to interest rate risk.
Distributions payable on preferred securities
may be subject to interest rate risk. To the extent that dividends on our preferred stock are based on short-term rates, our costs
may rise during a rising interest rate environment and cash flow required to service our preferred securities may exceed available
cash flow from operations, which may result in deferral or default under the terms of our preferred securities. To the extent
that dividends on our preferred stock are fixed, our costs may increase upon maturity or redemption of the securities. This might
require us to sell investments at a time when we would otherwise not do so, which may affect adversely our future ability to generate
cash flow. To the extent that preferred securities have call or conversion provisions that are in our favor, such provisions may
be detrimental to your returns.
Preferred stock will be junior to any outstanding notes
or other borrowings.
Preferred stock will
be junior in liquidation and with respect to distribution rights to debt securities and any other borrowings. Such indebtedness
may constitute a substantial lien and burden on preferred stock by reason of their prior claim against our income and against
our net assets in liquidation. We may not be permitted to declare dividends or other distributions with respect to any series
of preferred stock unless at such time we meet applicable asset coverage requirements and the payment of principal or interest
is not in default with respect to any notes or other borrowings.
Inflation may negatively impact our preferred securities.
Inflation is the reduction in the purchasing
power of money resulting from an increase in the price of goods and services. Inflation risk is the risk that the inflation adjusted
or “real” value of an investment in preferred stock or debt securities or the income from that investment will be
worth less in the future. As inflation occurs, the real value of the preferred stock and the dividend payable to holders of preferred
stock or interest payable to holders of debt securities declines.
Additional Risks Related to Warrants and Subscription Rights
We may not seek to establish a trading market for our
warrants or subscription rights, and in all events an active trading markets for those securities may not develop.
Currently, no public market exists for
our warrants or for subscription rights we may issue. We cannot assure you that one will develop or be sustained after this offering.
We do not currently intend to apply to list the warrants, and may not list any subscription rights, on any national securities
exchange or automated quotation system.
The warrants or subscription rights may have no value
in bankruptcy.
In the event a bankruptcy or reorganization
is commenced by or against us, a bankruptcy court may hold that unexercised warrants or subscription rights are executory contracts
subject to rejection by us with approval of the bankruptcy court. As a result, holders of warrants or subscription rights may,
even if sufficient funds are available, not be entitled to receive any consideration or may receive an amount less than they would
be entitled to if they had exercised their warrants or subscription rights prior to the commencement of any such bankruptcy or
reorganization.
As a holder of warrants or subscription rights, you will
not receive distributions on our common stock.
Holders of warrants or subscription rights
will not have the right to receive any distributions and will not have any voting rights so long as their warrants or subscription
rights are unexercised.
COMPANY OVERVIEW
Overview
Power REIT is a publicly traded real estate
investment trust, or REIT, that is in the business of owning, acquiring and developing energy and transportation infrastructure
assets within the United States, including its territories (“U.S.”). Our wholly owned, qualified REIT subsidiary,
Pittsburgh & West Virginia Railroad, owns approximately 112 miles of railroad track that is leased pursuant to a triple-net
lease to Norfolk Southern Corporation. Our primary business objectives are to create long-term shareholder value and growth of
funds from operations per share, or FFO, and dividends per share.
Power REIT is incorporated in the State
of Maryland as a real estate investment trust. Power REIT was formed in August 2011 to effect a triangular merger of the Pittsburgh
& West Virginia Railroad (“Reorganization”). Pittsburgh & West Virginia Railroad was a publicly traded REIT
prior to the Reorganization and was listed on the American Stock Exchange in 1967. Concurrent with the Reorganization, which was
completed on December 2, 2011, Power REIT became listed on the NYSE Amex under the ticker symbol “PW” and Pittsburgh
& West Virginia Railroad survived the Reorganization as a wholly-owned, special purpose subsidiary of Power REIT with a sole
purpose of owning and managing its railroad property. Power REIT is an internally managed REIT.
Our investment strategy is to acquire infrastructure
assets that qualify for REIT ownership, with an initial focus on the transportation and energy industries. We believe infrastructure
assets often have a significant amount of embedded real estate in the form of rights of way, land, leasehold interests and passive
physical infrastructure that qualify for REIT ownership.
We expect to access potential acquisitions
through a broad network of relationships, including developers, brokers, investment banks and private equity firms. Our relationships
often choose to work with us due to our strengths as a real estate investment trust and our ability to provide a broader array
of transaction structures to address the varying need of sellers and infrastructure asset developers. We believe this allows us
to selectively access and acquire infrastructure assets that are accretive to our business plans.
Our capitalization strategy is to create
and maintain what we believe is a stable debt and equity capital structure relative to the assets that we are targeting to acquire.
We intend to employ prudent amounts of leverage as a means of providing additional funds to acquire infrastructure assets, to
refinance existing debt or for general corporate purposes. As of March 31, 2012, Power REIT had zero debt on a consolidated basis.
We intend to target the ratio of debt to enterprise value to no more than 50%, although our organizational documents contain no
limitations regarding the maximum level of debt that we may incur and we may exceed this amount from time to time. Our debt may
consist of recourse and non-recourse debt, guarantees or other types of debt financing arrangements.
Our principal executive offices are located
at 55 Edison Avenue, West Babylon, NY 11704 and our offices can be reached by telephone at (212) 750-0373. Our website address
is
http://www.pwreit.com
. The information on, or otherwise accessible through, our website does not constitute a part of
this prospectus.
Our Business and Growth Strategies
Our primary business objectives are to
create long-term shareholder value and growth of FFO per share and dividends per share. We intend to achieve these objectives
primarily through the acquisition of infrastructure investments. Investments may include interests in land and other real property
associated with infrastructure projects. The company believes that the assets it will acquire represent a critical component of
their respective infrastructure projects and therefore should provide reliable cash flow in the form of lease payments. We intend
to invest in stabilized infrastructure assets and selectively invest in development opportunities that can offer higher rates
of return and/or upside potential through early-stage investment entry and/or additional investment and development opportunities
beyond the initial development.
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Focus
on Infrastructure
Assets with
Predictable
Cash flows
and Attractive
Risk-Adjusted
Returns
.
Infrastructure
assets often
have significant
replacement
or relocation
costs. In
many cases,
the projects
are highly
dependent
on a specific
location
and cannot
be relocated
either due
to contractual
issues or
are impractical
to relocate
due to cost
advantages,
such as
rights of
way or proximity
to other
supporting
or complementary
infrastructure.
In some
cases the
location
might have
unique site-specific
natural
and other
resources
making it
particularly
valuable
for such
project.
Further,
user demand
for infrastructure
is often
inelastic
and may
be positively
influenced
by government-mandated
regulations.
Infrastructure
revenues
are often
supported
by long-term
agreements
with customers
that have
strong underlying
credit characteristics,
which should
contribute
to stable,
long-term
cash flows.
We believe
these aforementioned
attributes
are some
of the reasons
that infrastructure
assets are
able to
generate
long-term,
predictable
cash flows
that can
be uncorrelated
to the broader
economy.
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Unlock
Embedded
Real Estate
Value within
Infrastructure
Assets
.
We intend
to focus
on infrastructure
projects
that have
a significant
amount of
embedded
real estate
in the form
of rights
of way,
land, leasehold
interests
and passive
physical
infrastructure
that are
considered
“real
assets”
and that
qualify
for REIT
ownership.
We believe
a significant
portion
of the energy
and transportation
industries
are ripe
for REIT
ownership
structures,
including
renewable
energy,
energy transmission
and transportation
assets.
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Existing
Railroad
Asset
.
We
currently
own,
through
our
wholly
owned
subsidiary,
Pittsburgh
&
West
Virginia
Railroad,
112
of
miles
of
railroad
and
associated
branch
lines,
including
track,
land
and
rights
of
way,
that
is
currently
leased
to
Norfolk
Southern
Corporation
on
a
triple-net
basis.
We
believe
that
this
property
cannot
be
replaced
on
a
cost-competitive
basis
today,
due
to
the
difficulty
of
assembling
the
real
estate
and
rights
of
way.
Our
lessee,
Norfolk
Southern
Corporation
(“NSC”),
is
a
Class
I
railroad
and
is
one
of
the
largest
railroad
companies
in
the
U.S.
As
reported
on
its
Form
10-K
filed
with
the
SEC,
Norfolk
Southern
Corporation
has
approximately
$9.9
billion
of
shareholders’
equity
as
of
December
31,
2011
and
earned
$1.9
billion
of
net
income
during
fiscal
year
2011.
We
believe
this
railroad
asset
will
continue
to
generate
consistent
cash
flow
over
time.
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Renewable
Energy
Assets
.
We
intend
to
initially
concentrate
our
growth
efforts
within
the
renewable
energy
sector.
To
date
we
have
primarily
focused
on
MW
scale
wind
and
ground
mounted
solar,
but
have
also
explored
and
will
continue
to
explore
other
renewable
energy
asset
classes.
These
assets
typically
have
long-term
power
purchase
agreements
with
investment
grade,
regulated
utilities.
Our
goal
is
to
acquire
the
real
property
assets
of
these
projects,
such
as
land,
leasehold
interests,
rights
of
way
and
associated
transmission
and
other
infrastructure
and
development
work,
and
lease
such
assets
back
to
the
respective
project
companies
on
a
long-term
basis.
Our
returns
will
generally
be
through
lease
payments
that
will
be
structured
as
an
operating
expense
of
the
respective
project.
In
addition
to
an
existing
focus
on
wind
and
solar
projects,
we
will
continue
to
explore
investment
in
other
renewable
energy
assets
classes
such
as
hydroelectric,
geothermal,
biofuels
and
biomass.
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Energy,
Transportation
and
Other
Infrastructure
Assets
.
In
addition
to
renewable
energy
assets,
we
intend
to
opportunistically
acquire
non-renewable
energy
and
transportation
infrastructure
related
real
assets,
that
may
include,
but
are
not
limited
to,
transmission
assets,
pipelines,
railroads,
ports,
highways
and
bridges.
On
an
opportunistic
basis,
we
may
acquire
other
infrastructure
assets
that
are
not
related
to
energy
or
transportation,
but
that
are
REIT
eligible
and
that
can
create
value
for
our
shareholders.
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Create
Value Through
Flexible
Transaction
Structuring
.
We will
generally
seek to
structure
our investments
in the form
of lease
transactions
that have
a base rent,
and in some
cases, will
include
escalation
and/or revenue
participation
clauses
tied to
underlying
gross revenue.
Although
participation
in gross
revenue
may result
in variability
to our lease
cash flows,
we believe
such participation,
when used
appropriately,
can generate
upside returns.
We will
also seek,
where appropriate,
to structure
triple net
leases or
other leases,
where the
bulk of
the operating
expenses
are borne
by our lessees.
In certain
cases, we
may seek
to structure
loans or
equity participations.
We will
generally
seek to
mitigate
our downside
and create
situations
where we
have a high
confidence
of the stability
of the projected
long-term
cash flows.
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Create
Value Through
Long-term,
Strategic
Ownership
.
Where possible,
we will
seek to
acquire
land and
rights of
ways on
a fee-simple
basis. We
believe
the acquisition
and control
of site
specific
rights of
way and
renewable
energy resources,
such as
air rights
or solar
resources,
can create
long-term
value through
additional
development,
revenue
opportunities
and/or long-term
valuation
upside,
which may
be incrementally
accretive
to our initial
investment
thesis and
provides
us with
a measure
of inflation
protection.
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Market Opportunity
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Infrastructure
provides
essential
services,
and the
stable supply
and demand
dynamics
of the market
are expected
to continue
in the future
.
We believe
energy infrastructure
is the backbone
of modern
society.
The demand
for these
resources
is directly
correlated
with population
growth,
and has
a low correlation
to market
cycles.
U.S. energy
consumption
is forecasted
to grow
by 20% from
2009 to
the year
2035 according
to the U.S.
Energy Information
Administration’s
(EIA) “Annual
Energy Outlook
April 2011”.
This growth
in energy
demand is
expected
to create
significant
opportunities
to invest
in generation,
transmission
and distribution.
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Large
segment
of infrastructure
assets are
REIT-eligible
.
We believe
infrastructure
assets often
have a significant
amount of
embedded
real property
value and
that these
real property
assets can
be acquired
by REITs.
Our wholly
owned subsidiary,
Pittsburgh
& West
Virginia
Railroad,
received
a revenue
ruling in
the 1960s
qualifying
passive
railroad
property,
including
bridges,
tunnels
and railroad
track as
“real
assets”.
Since the
railroad
revenue
ruling in
the 1960s,
numerous
other private
letter rulings
have been
issued by
the IRS,
defining
that certain
assets,
including
cell towers,
data centers,
electric
and gas
transmission
and distribution
assets,
are real
assets for
tax purposes
that can
be held
by REITs.
The private
letter rulings
treat such
assets as
qualifying
real estate
assets if
the income
from these
assets is
derived
from rents
on real
property.
Although
these private
letter rulings
may only
be relied
upon by
the taxpayer
to whom
they were
issued,
we believe
these rulings
provide
insight
into the
current
thinking
of the IRs
with respect
to infrastructure
assets.
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Investment
is needed
in U.S.
energy infrastructure
.
Due to continued
growth in
electricity
demand,
aging infrastructure
and requirements
to transmit
renewable
energy power
from generating
centers
to population
centers,
we believe
that substantial
amounts
of capital
will be
invested
in energy
infrastructure.
According
to the Edison
Electric
Institute,
annual investment
in transmission
infrastructure
will reach
$14 billion
annually
by 2014.
In addition,
significant
investments
are projected
in natural
gas transmission
and distribution
infrastructure
as a result
of the increased
shale gas
production
in the U.S.
and Canada.
Transportation
infrastructure
will also
face similar
investment
dynamics,
and substantial
investments
in ports,
highways
and bridges.
These investments
will be
required
to replace
and upgrade
existing
infrastructure
and to develop
greenfield
infrastructure
to support
increased
urbanization
and changes
in demographics.
Many of
these infrastructure
investments
will be
funded by
private
enterprise
or by public-private
partnerships
(PPP) due
to cuts
in state
and federal
funding.
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Substantial
Investment
Opportunities
in Renewable
Energy
.
According
to a report
published
by Bloomberg
New Energy
Finance,
approximately
$56 billion
of renewable
energy investments
were made
in the US
in 2011.
EIA projected
in its 2011
report that
renewable
energy,
including
hydroelectric
power, would
grow by
72% raising
its total
percentage
of generation
capacity
to 14%.
We expect
that future
growth in
generation
from renewable
energy will
be driven
primarily
by State
renewable
portfolio
standard
(RPS) requirements,
Federal
tax credits
and the
price declines
and performance
improvements
in solar
and wind
technologies
that are
making renewable
energy cost
competitive
with traditional
sources
of energy
in certain
parts of
the U.S.
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Attractive
Market
Dynamics
.
The
renewable
energy
market
is
characterized
by
both
a
large
number
of
investment
opportunities
and
a
high
velocity
of
transactions,
as
developers
of
generating
facilities
are
often
temporary
owners
of
projects
and
institutional
investors
do
not
have
many
standardized
investment
offerings
to
gain
exposure
to
renewable
energy.
Due
to
the
large
volume
of
transactions
as
well
as
the
ongoing
state
of
flux
of
federal
and
local
incentives
for
renewable
energy
projects,
we
believe
there
will
be
a
significant
opportunity
to
selectively
invest
in
high
quality
transactions
and
generate
attractive
risk
adjusted
returns
for
our
shareholders.
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Attractive
Industry
Structure:
Low
Water
Usage
and
Low
Correlation
to
Global
Commodity
Pricing
.
Although
the
environment
for
building
renewable
energy
projects
can
be
volatile,
renewable
energy
projects
that
are
constructed
enjoy
significant
advantages
over
traditional
energy.
Significantly,
the
operating
costs
of
renewable
energy
facilities
are
not
impacted
by
market
fluctuations
in
the
cost
for
fossil
fuels.
Further,
these
energy
facilities
typically
have
low
water
usage
when
compared
to
coal,
natural
gas
and
nuclear
power.
The
combination
of
lower
water
and
commodity
usage
results
in
a
low
correlation
to
global
demand
growth
for
water
and
energy
commodities.
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Competitive Strengths
We believe we distinguish ourselves from
our competitors through the following competitive strengths:
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Attractive
Partner
for Transportation
and Energy
Companies
.
We believe
our ability
to provide
creative
and, long-term
lease financing
solutions
makes us
a desirable
partner
for owners
and operators
of infrastructure
assets.
As a REIT,
we will
structure
long-term
leases that
are intended
to supplement
and be complimentary
to other
financing
provided
by capital
providers,
such as
commercial
lenders,
leasing
companies
and tax
oriented
investors.
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Efficient
Access to
Capital
.
As a public
real estate
investment
trust (REIT),
Power REIT
benefits
from access
to a broader
universe
of investors,
including
foreign
investors
and tax-exempt
pools of
capital
that typically
avoid direct
infrastructure
investments
or those
investments,
such as
master limited
partnerships,
that generate
unrelated
business
taxable
income (UBTI)
income.
As a result
of both
Power’
REIT’s
public listing
and its
structure
as a REIT,
we believe
that we
will be
able to
access lower
cost of
capital
than many
of our competitors,
allowing
us to competitively
price transactions
relative
to other
capital
providers.
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Flexible
Transaction
and UPREIT
Structuring
.
We are
not subject
to many
of the regulatory
limitations
that govern
traditional
lending
institutions
such as
commercial
banks. Furthermore,
we have
the ability
to utilize
umbrella
partnership
REIT (UPREIT)
contribution
transactions
to structure
transactions
that allow
sellers
who contribute
assets to
our UPREIT
the potential
to participate
in public
markets
valuations
and to sell
assets on
a tax-advantaged
or deferred
basis. As
a result,
we believe
we will
be able
to address
the concerns
and objectives
of a broader
range of
assets sellers.
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Established
REIT Operating
Platform
.
Power REIT
is an internally
managed,
public real
estate investment
trust that
is listed
on the NYSE
American
Stock Exchange
(“NYSE
Amex”).
Unlike our
private
competitors
that are
seeking
to implement
a REIT infrastructure
business
model, Power
REIT has
the advantage
of already
being public
and the
ability
to access
capital
and structure
UPREIT transactions.
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Experienced
Executive
Management
Team with
a Proven
Track Record
.
Collectively,
our executive
management
team has
40 years
of experience
in investment
banking,
energy,
capital
markets
and creating
shareholder
value in
public real
estate investments.
Power REIT
is led by
David H.
Lesser who
serves as
our Chairman
and Chief
Executive
Officer.
Mr. Lesser
has significant
experience
with real
estate and
real estate
securities
having served
as a Director
of Investment
Banking
at Merrill
Lynch &
Co in the
real estate
finance
group and
as a Senior
Vice President
of Crescent
Real Estate
Equities
(NYSE: CEI).
In 1995,
Mr. Lesser
formed Hudson
Bay Partners,
LP (“HBP”),
an investment
firm focused
on real
estate,
real estate-related,
and alternative
energy opportunities.
In 1997,
Mr. Lesser,
as president
of HBP,
led an investor
group that
conducted
a reverse
merger transaction
with American
Real Estate
Investment
Corporation
(AMEX: REA)
leading
ultimately
to the formation
of Keystone
Property
Trust (NYSE:
KTR) (“Keystone”).
The transaction
involved
an investment
of $30 million
of cash,
the merger
of a property
management
company
and the
acquisition
of a family
owned portfolio
of industrial
properties
for ownership
in the REIT.
In addition
to the initial
structuring
and the
equity investment
by HBP,
Mr. Lesser
served on
Keystone’s
board of
trustees
until June
2000. Keystone
was acquired
by Prologis
(NYSE: PLD)
in 2004
for a total
enterprise
value of
$1.4 billion
and delivering
a compound
annual shareholder
return of
16.5% from
the initial
transaction.
Power REIT’s
business
plan is
similar
to Keystone’s
original
business
plan: create
shareholder
value through
acquisitions
that grow
funds from
operations
and dividends
per share.
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Management
Team’s
Interests
are Aligned
with Shareholders
.
As an internally
managed
REIT, we
believe
that Power
REIT has
fewer conflicts
of interests
and better
alignment
compared
to externally
managed
REITs and
MLPs. In
addition,
collectively,
our management
team and
trustees
own approximately
10% of our
common shares
as of March
31, 2012
and are
motivated
to create
shareholder
value as
shareholders
of the company.
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GENERAL INFORMATION AS TO REGISTRANT
Power REIT was organized as a REIT trust
under Maryland law on August 26, 2011 and is governed by Maryland REIT Law and Maryland General Corporation Law (“Maryland
Law”). In addition to Maryland Law, Power REIT is governed by our Amended and Restated Declaration of Trust, dated November
28, 2011 (“Declaration of Trust”) and by our By-laws, dated October 20, 2011 (“By-laws” and together with
Declaration of Trust, “Governing Documents”). Power REIT shall continue perpetually, unless terminated pursuant the
relevant provisions of our Declaration of Trust and Maryland Law.
Under the provisions of our Governing Documents,
we are required to hold an annual shareholders’ meeting to elect trustees and to transact any other business validly brought
forth before shareholders at such meeting. A special meeting of the shareholders may be called at any time by the Board of Trustees,
or by the Chairman of the Board of Trustees, or by the Chief Executive Officer, or by one or more shareholders holding shares
in the aggregate entitled to cast not less than a majority of the votes at such special meeting of shareholders. Our By-laws provide
that, subject to applicable statute or the Declaration of Trust, the presence in person or by proxy of shareholders entitled to
cast 33-1/3% of all the votes entitled to be cast at any shareholders’ meeting shall constitute a quorum.
Corporate Structure and UPREIT Reorganization
We are currently organized as a REIT holding
company, with a single wholly owned subsidiary. Power REIT intends to acquire and finance additional investments assets through
the formation of additional special purpose subsidiaries. We believe the creation of individual, special purpose asset subsidiaries
will provide us with greater flexibility in financing our assets and may help us segregate risks within our investment portfolio.
Provided we succeed in moving forward with
our financing and acquisition strategies, Power REIT intends to form an UPREIT (“Operating Partnership” or “Power
UPREIT”), which is a common form of organization for many equity REITs in the U.S. At such time, we expect to contribute
the shares of Pittsburgh & West Virginia Railroad and any other special purpose asset ownership, to our Operating Partnership
in exchange for Operating Units (“OP Units”) in the Operating Partnership (the “UPREIT Reorganization”).
Power REIT intends to manage the Operating Partnership. Following our UPREIT transaction, substantially all of our operations
will be carried out through our Operating Partnership and its special purpose subsidiaries. The following diagram describes our
existing ownership structure and our ownership structure upon completion of the UPREIT Reorganization.
MANAGEMENT
Our Trustees and Officers
Our board of trustees is currently comprised
of four trustees, a majority of whom are independent in accordance with the NYSE Amex Company Guide. Each trustee is elected by
our shareholders to serve until the next annual meeting and until his or her successor is duly elected and qualifies. Our entire
Board of Trustees will stand for reelection at our 2012 annual meeting of shareholders. Our By-laws provide that a majority of
the entire board of trustees may increase or decrease the number of trustees. All of our executive officers serve at the discretion
of our board of trustees. The following table sets forth certain information about our current trustees, trustee nominees and
executive officers:
Name
|
Age
|
Company Position
|
David. H. Lesser
|
46
|
Chairman of our Board of Trustees and Chief Executive Officer
|
Virgil Wenger*
|
81
|
Trustee and Chairman of Audit Committee
|
William S. Susman*
|
48
|
Trustee and Chairman of Compensation Committee
|
Patrick R. Haynes, III*
|
28
|
Trustee and member of Audit and Compensation Committees
|
Arun Mittal
|
35
|
Secretary, Treasurer and Vice President of Business Development
|
* These trustees are considered independent within the meaning
of the listing standards of the NYSE Amex.
Biographical Summaries of Trustees and Executive Officers
The following are biographical summaries of the experience
of our current trustees and executive officers.
Mr. David H. Lesser
has over
25 years of experience in real estate, including substantial experience in creating shareholder value in REITs. Mr. Lesser is
currently, and has been for the past 15 years, president of Hudson Bay Partners, LP (“HBP”), an investment firm focused
on real estate, real estate-related situations and alternative energy opportunities. He also serves as a trustee of the Town Hall
in New York City. Mr. Lesser has previously held leadership roles with public REITs, having served as a Senior Vice President
of Crescent Real Estate Equities and as a Director of Keystone Property Trust. Prior to Crescent, Mr. Lesser was a Director of
Investment Banking at Merrill Lynch & Co. within the real estate finance group.
Since 1995, Mr. Lesser, through HBP, has
invested in numerous real estate and alternative energy transactions, including a reverse merger transaction in 1997 that led
to the formation of Keystone Property Trust (NYSE: KTR) (“Keystone”). Mr. Lesser, as president of HBP, led an investor
group and structured a reverse merger transaction with American Real Estate Investment Corporation (AMEX: REA) to ultimately form
Keystone. The transaction involved an investment of $30 million of cash, the merger of a property management company and the acquisition
of a family owned portfolio of industrial properties for ownership in the REIT. In addition to initial structuring and equity
investment by HBP, Mr. Lesser served on Keystone’s board of trustees until June 2000. Keystone was acquired by Prologis
(NYSE: PLD) in 2004 for a total enterprise value of $1.4 billion and delivering a compound annual shareholder return of 16.5%
from the initial transaction.
HBP currently owns Intelligen Power Systems,
LLC (“IPS”) which is an alternative energy business focused on the manufacturing of cogeneration equipment and the
development of distributed energy related to cogeneration, wind, solar and biofuel. HBP acquired IPS through the bankruptcy reorganization
of California-based Coast Intelligen (“Coast”), which was acquired as a portfolio company by an affiliate of Mr. Lesser’s
in 2001. As a consequence misdeeds by Coast’s former owners and management team, and not involving Mr. Lesser, Coast was
reorganized through a Chapter 11 bankruptcy filing, the ultimate result of which was (i) Coast winding down its operations; and
(ii) IPS, which was a subsidiary of Coast, successfully emerging from the reorganization. IPS continues to operate today with
a refocused business plan providing cogeneration and other energy solutions to owners of real estate properties. Mr. Lesser holds
an M.B.A. from Cornell University and a B.S. in Applied Management and Economics from Cornell University.
Mr. Lesser has been Chairman of Power REIT’s
Board of Trustees and our Chief Executive Officer since December 2011. Prior to servicing in the aforementioned roles with Power
REIT, Mr. Lesser served Pittsburgh & West Virginia Railroad as Chairman of Board of Trustees and Chief Executive Officer from
December 2010 to December 2011 and February 2011 to December 2011, respectively and served as a Trustee of Pittsburgh & West
Virginia Railroad since 2009.
Virgil E. Wenger, CPA
is
currently, and has been for the past eight years, an independent consultant who primarily works with new startup ventures needing
accounting services and financial planning assistance to determine investment and working capital needs. He also serves as chief
financial officer for two private companies: Shareholder Intelligence Services, a provider of information to publically traded
client companies of shareholder ownership, broker activity, and related analytics; and Econergy Corporation, a manufacturer and
marketer of proprietary air conditioning systems. Mr. Wenger was previously a partner at Ernst & Young LLP. He is a graduate
of the University of Kansas, with a B.S. in Business Administration and of the Harvard Business School Advanced Management Program.
Mr. Wenger has been a trustee and Power
REIT’s Audit Committee Chairman since December 2011. Prior to servicing in the aforementioned roles with Power REIT, Mr.
Wenger served Pittsburgh & West Virginia Railroad as trustee and Audit Committee Chairman from 1991 to 2011 and 2005 to December
2011 respectively.
William S. Susman
has 20
years of investment banking experience, including significant experience in the transportation and railroad industry. As the former
head of Merrill Lynch’s Transportation and Consumer Group, Mr. Susman advised numerous railroad clients, including Burlington
Northern, CSX, Kansas City Southern, Norfolk Southern Railways, TMM and Union Pacific. Mr. Susman is currently founder and CEO
of a boutique investment advisory firm, Susman Partners, which operates as Threadstone Advisors. Prior to founding Threadstone
Advisors, he was President of Financo where he worked from 2004-2011. Financo is an investment bank focused on retail and consumer
goods. Mr. Susman began his investment banking career at Salomon Brothers within their transportation group. Mr. Susman sits on
the boards of two private companies: Major Brands and Jonathan Adler Enterprises. Mr. Susman is a graduate of the University of
Michigan, with a B.S. in Business Administration and earned a Masters from the Kellogg Graduate School of Management at Northwestern.
Mr. Susman has been a trustee and Power
REIT’s Compensation Committee Chairman since December 2011. Prior to servicing in the aforementioned roles with Power REIT,
Mr. Susman served Pittsburgh & West Virginia Railroad as trustee and Compensation Committee Chairman from May 2011 to December
2011 and from August 2011 to December 2011, respectively.
Patrick R. Haynes, III
is
currently employed by the Rockefeller Group Investment Management Corp. (“RGIM”) as a senior associate. Mr. Haynes
joined RGIM in 2010 and is responsible for financial analysis, RGI’s corporate acquisitions initiatives, and institutional
fundraising. Mr. Haynes began his career at Lehman Brothers after graduating from Brown University in 2007. At Lehman Brothers,
Mr. Haynes worked in the Real Estate Private Equity Group where he performed financial analysis, market research and due diligence
for over $2.0 billion in potential real estate acquisitions across all asset classes nationally. Mr. Haynes also worked on the
successful management buyout of Lehman’s equity funds’ advisory business, responsible for the management of approximately
$18 billion in real estate assets globally. Mr. Haynes received a BA in U.S. History from Brown University.
Mr. Haynes has been a trustee and a member
of Power REIT’s Audit and Compensation Committees since December 2011. Prior to servicing in the aforementioned roles with
Power REIT, Mr. Haynes served Pittsburgh & West Virginia Railroad as trustee from September 2010 to December 2011, member
of the Audit Committee from September 2010 to December 2011 and member of the Compensation Committee from August, 2011 to December
2011.
Arun Mittal, CFA
has over
a decade of investment banking experience in financial institutions and energy sectors. Mr. Mittal is currently a Managing Principal
of Caravan Partners, LLC, a consulting firm. He was previously a Director at StoneCastle Partners, LLC, a boutique investment
bank and asset manager. Prior to StoneCastle, Mr. Mittal was part of the capital markets group at Tokyo-based Shinsei Bank and
briefly served as CEO of Shinsei Capital (USA), Ltd. Mr. Mittal holds a B.S. in Electrical Engineering from Stanford University
and a M.S. in electrical engineering from Georgia Institute of Technology.
Mr. Mittal has served as Power REIT’s
Secretary, Treasurer and its Vice President of Business Development since December 2011. Prior to servicing in the aforementioned
roles with Power REIT, Mr. Mittal served Pittsburgh & West Virginia Railroad as its Secretary, Treasurer and Vice President
of Business Development from April 2011 to December 2011. Mr. Mittal is currently remunerated pursuant to a consulting agreement
with an affiliate of Mr. Mittal, whereby the affiliate receives $7,500 per month plus reimbursement for any out of pocket expenses.
Selection, Management and Custody of our Investments
Power REIT is internally managed and is
led by Messrs. Lesser and Mittal (“Management Team”). The Management Team is responsible for management of the company’s
real estate properties, including arranging for purchases, sales, leases and any associated maintenance and insurance. For material
capital investments, disposals or leasing contracts, the Management Team will present the transaction to the Board, or if an investment
committee is established by the Board, to the investment committee. Power REIT does not intend to hire external managers or advisors
to select and manage its investments; however, it may use investment banks, advisors or consultants to source investments and
may use custodian banks or other service providers to provide ministerial or accounting services for individual or a collection
of its assets.
Board Leadership Structure and Role in Risk Oversight
In accordance with our governing documents,
our Board of Trustees elects the Chairman of our Board of Trustees and each of our executive officers, and each of these positions
may be held by the same or separate persons. Our corporate governance guidelines do not include a policy on whether the role of
the Chairman and Chief Executive Officer should be separate or, if not, whether a lead independent director is to be elected.
Historically, the positions have been held by the same person. We believe that this arrangement is suitable for a company of our
size. As Power REIT grows, our board may reconsider this arrangement for board leadership structure. From December 2011, Mr. Lesser,
the Chairman of our Board of Trustees, also served as our Chief Executive officer.
Our Board of Trustees has an active role
in overseeing management of our risks. The board regularly reviews information regarding our liquidity, operations and investment
activities, as well as the risks associated with each. The board is responsible for overseeing the implementation of our investment
strategy, the principal goal of which is to enhance long-term shareholder value through increases in earnings, cash flow and net
asset value. Each investment transaction is currently approved by a majority of the trustees of the board. In the future, the
board may establish an investment committee consisting of trustees to oversee our investment activities, including the review
and approval of specific transactions.
Board Committees
Our Board of Trustees has established two
committees: an audit committee and a compensation committee. Each of the audit committee and compensation committee consists solely
of independent trustees in accordance with the NYSE Amex Company Guide.
Audit Committee
Our audit committee consists of two independent
trustees, each of whom is “financially literate” under the rules of the NYSE Amex: Virgil E. Wenger and Patrick R.
Haynes, III. Mr. Wenger serves as chairman of the audit committee and as the “audit committee financial expert,” as
defined in applicable SEC rules. Pursuant to its charter, the audit committee, among other purposes, serves to assist the Board
of Trustees in overseeing:
|
·
|
the
integrity
of our financial
statements;
|
|
·
|
our
compliance
with legal
and regulatory
requirements
and ethical
behavior;
|
|
·
|
the
retention
of independent
public auditors,
including
oversight
of their
performance,
qualifications
and independence,
as well
as the terms
of their
engagement;
and
|
|
·
|
our
accounting
and financial
reporting
processes,
internal
control
systems
and internal
audit function.
|
|
·
|
our
monitoring
of compliance
with laws
and regulations
and our
code of
business
conduct
and ethics
|
|
·
|
our
investigation
of any employee
misconduct
or fraud
|
Compensation Committee
Our compensation committee consists of
two independent trustees: William S. Susman and Patrick R. Haynes, III. Mr. Susman serves as chairman of the compensation committee.
The compensation committee, among other purposes, serves:
|
·
|
to establish
and periodically
review the
adequacy
of the compensation
plans for
our executive
officers
and other
employees;
|
|
·
|
to review
the performance
of executive
officers
and adjust
compensation
arrangements
as appropriate;
|
|
·
|
to establish
compensation
arrangements
for our
non-executive
trustees;
and
|
|
·
|
to review
and monitor
management
development
and succession
plans and
activities.
|
Trustee Nomination Process
We have adopted a corporate resolution
setting forth the trustee nomination process, which is the responsibility of the independent trustees of the Board. Nominee candidates
for Board membership that are recommended by Board members as well as by management and shareholders will be considered. Trustee
nominees are to be selected on the basis of, among other things, broad perspective, integrity, independence of judgment, experience,
expertise, educational and other achievements, ability to make independent analytical inquiries, understanding of Power REIT's
business environment and investment strategy and willingness to devote adequate time and effort to Board responsibilities. Nominations
by shareholders are evaluated in the same manner as nominations from any of the other sources described above. Considering the
current size of the company and that the majority of the members of the Board (three out of four trustees) are independent, we
believe that the current nominating process is sufficient in lieu of a formal nominating committee. The Board may, in its discretion,
establish a nominating committee at such time as it deems appropriate.
Trustee Compensation
Our trustees are currently paid an annual
director’s fee of $2,400, payable in quarterly installments. Other than such annual trustee fees and reimbursements, there
are currently no other compensation arrangements with any trustee.
Compensation of our current trustees for
the fiscal year ending December 31, 2011, is listed in the table below, including the consolidated historical results of our wholly
owned subsidiary, Pittsburgh & West Virginia Railroad.
Trustee Name
|
|
Fees
earned or Paid in Cash ($)
|
|
|
Stock
Awards($)
|
|
|
Option
Awards ($)
|
|
|
Non-Equity
Incentive Plan
Compensation ($)
|
|
|
Non-qualified
Deferred Compensation Earnings ($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
David H. Lesser
|
|
$
|
2,400
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,400
|
|
Virgil E. Wenger
|
|
$
|
2,400
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,400
|
|
William S. Susman
|
|
$
|
1,800
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,800
|
|
Patrick R. Haynes, III
|
|
$
|
2,400
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,400
|
|
Larry Parsons
(1)
|
|
$
|
600
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
600
|
|
Hebert E. Jones, III
(2)
|
|
$
|
0
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
0
|
|
1. Larry Parsons was not nominated to stand for election as
a trustee at the 2011 annual shareholder meeting.
2. Hebert E. Jones, III resigned as trustee and President on
February 3, 2011.
Executive Officer Compensation
Power REIT does not have an employment
agreement with David H. Lesser, our Chief Executive Officer, and has not paid any compensation to Mr. Lesser in his role as our
Chief Executive Officer. Mr. Lesser, in his role of Trustee and Chairman of the Board of Trustees, receives annual trustee fees
of $2,400, paid in quarterly installments. Power REIT does not have an employment agreement with Arun Mittal, our current Secretary,
Treasurer and Vice President of Business Development. Power REIT has entered into a consulting agreement with an affiliate of
Mr. Mittal’s, pursuant to which we pay Mr. Mittal a monthly consulting fee of $7,500 plus reimbursement of reasonable out-of-pocket
expenses in connection with his services. The compensation of Power REIT’s officers for the two fiscal years ending December
31, 2011 is set forth in the table below, including compensation paid by our predecessor (and now our wholly-owned subsidiary),
Pittsburgh & West Virginia Railroad.
Name and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards ($)
|
|
|
Incentive
Plan Compensation ($)
|
|
|
Deferred
Compensation Earnings ($)
|
|
|
All
Other Compensation ($)
|
|
|
Total
($)
|
|
David H. Lesser, CEO
|
|
|
2011
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Arun Mittal, Secretary,
Treasurer and Vice President of Business Development
|
|
|
2011
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
67,500
|
|
|
$
|
67,500
|
|
Hebert E. Jones, III, President
(1)
|
|
|
2011
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Robert
McCoy, Secretary
and
Treasurer
(2)
|
|
|
2011
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,500
|
|
|
$
|
7,500
|
|
Hebert E. Jones, III, President
(1)
|
|
|
2010
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Robert
McCoy, Secretary
and
Treasurer
(2)
|
|
|
2010
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
--------------------
1. Herbert E. Jones, III resigned as trustee and President
on February 3, 2011
2. Robert McCoy resigned as Secretary and Treasurer on March
31, 2011. Previously, Mr. McCoy was paid an annual fee of $12,000, paid in quarterly installments, and an affiliate of Mr. McCoy
was paid $18,000 for use of office space, paid in quarterly installments.
There were no outstanding equity awards
at fiscal year-end 2011. We intend to adopt an equity compensation plan for the benefit of our executive officers and future employees,
which will be submitted to our shareholders for approval at our annual meeting of shareholders in 2012. The goal of our equity
compensation plan is to align the interests of management with the interests of shareholders and to compensate management as shareholder
value is created. If approved, the Compensation Committee, comprised of independent trustees, will be responsible determining
the amounts to be granted and terms of the grants.
Indemnification of Trustees and Officers
Our Declaration of Trust provides for indemnification
of our trustees and officers against liabilities to the fullest extent permitted by applicable law. If a trustee or officer is
a party, or is threatened to be made a party, to any proceeding by reason of such director’s or officer’s status as
a director or officer, we must indemnify such director or officer for all expenses and liabilities actually and reasonably incurred
by him or her, or on his or her behalf, unless it has been established that:
|
·
|
the
act or omission
of the director
or officer
was material
to the matter
giving rise
to the proceeding
and was
committed
in bad faith
or was the
result of
active and
deliberate
dishonesty;
|
|
·
|
the
director
or officer
received
an improper
personal
benefit
in money,
property
or services;
or
|
|
·
|
in the
case of
a criminal
proceeding,
the director
or officer
had reasonable
cause to
believe
his or her
conduct
was unlawful.
|
In the event of any amendment to Maryland
Law permitting us to provide broader indemnification rights than are currently set forth in our Governing Documents, such rights
would be provided to the fullest extent required or permitted by the Maryland Law as so amended.
Trustees’ and Officers’ Insurance
We maintain a policy of insurance under
which our trustees and officers are insured, subject to the limits of the policy, against certain losses that they experience
resulting from claims made against them arising from actions taken by them in their capacities as trustees or officers, including
certain liabilities under the Securities Act of 1933, as amended, or the Securities Act.
Compensation Committee Interlocks and Insider Participation
All members of the Compensation Committee
are independent Trustees, and none of them are present or past employees of Power REIT or Pittsburgh & West Virginia Railroad.
No member of the Compensation Committee has had any relationship with Power REIT or Pittsburgh & West Virginia Railroad requiring
disclosure under Item 404 of Regulation S-K of the Exchange Act and none of our executive officers has served on the Board of
Trustees or compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive
officers served on our board or Compensation Committee.
Policies with Respect to Certain Transactions
Pursuant to Power REIT’s Declaration
of Trust, we may enter into a transaction with a trustee, officer or employee, where such person has a material financial interest,
provided however, that such interest is disclosed to the trustees, and a majority of the disinterested trustees approve such transaction.
Related Party Transactions
We have hired Morrison Cohen, LLP (“MOCO”)
as our legal counsel with respect to general corporate matters and the litigation with Norfolk Southern Corporation related to
the Lease. A spouse of Mr. Lesser, CEO and Chairman of the Board of Trustees, is a partner at MOCO. Since the start of our 2011
fiscal year through March 31, 2012, we have paid approximately $115,000 in legal fees to MOCO in connection with various legal
matters, including the litigation with Norfolk Southern Corporation. In addition, as of March 31, 2012, approximately $85,000
had been billed by MOCO, but unpaid, in connecting with the general corporate matters and the litigation (See “Legal Proceedings”).
In February 2011, Pittsburgh & West
Virginia Railroad entered into a standby purchase agreement with an affiliate of Mr. Lesser, whereby the affiliate agreed to acquire
the balance of the shares not acquired by shareholders through the exercise of their rights under a rights offering. The shares
acquired by the standby purchaser were at the same prices and on the same terms as other shareholders.
Other than these transactions described
above, there no other transactions that require disclosure pursuant to Item 404 of Regulation S-K of the Exchange Act.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain
of our financing and other policies. These policies have been determined by our board of trustees and, in general, may be amended
and revised from time to time at the discretion of our board of trustees without notice to or a vote of our shareholders.
Financing Policy
Our financing policies will largely depend
on the nature and timeline of our investment opportunities and the prevailing economic and market conditions. If our Board of
Trustees determines that additional funding is desirable, we may raise funds through the following means: senior or subordinated
debt financings, including but not limited to, accessing U.S. debt capital markets, drawing from credit facilities or through
term bank borrowings, preferred or common equity offerings of securities, and any combination of the above methods. Power REIT’s
debt financings may be secured or unsecured with respect to its properties and may be issued through our subsidiaries, and any
such financing may or may not be guaranteed by the Power REIT. Power REIT has not issued debt securities during the past three
years and does not currently have a line of credit. In the future, we may seek to obtain new credit facilities or lines of credit,
or issue new unsecured or secured debt that may contain limitations on indebtedness or operations.
Our capitalization strategy is to create
and maintain what believe is a stable debt and equity capital structure relative to the assets that we are targeting to acquire.
We intend to employ prudent amounts of leverage as a means of providing additional funds to acquire infrastructure assets, to
refinance existing debt or for general corporate purposes. As of March 31, 2012, Power REIT had zero debt on a consolidated basis.
We intend to target the ratio of debt to enterprise value to no more than 50%, although our organizational documents contain no
limitations regarding the maximum level of debt that we may incur and we may exceed this amount from time to time. Our debt may
consist of recourse and non-recourse debt, guarantees or other types of debt financing arrangements.
Our charter and By-laws do not limit the
amount or percentage of debt that we may incur nor do they restrict the form of our debt (including recourse, non-recourse and
cross-collateralized debt). Our Board of Trustees has not adopted a policy limiting the total amount of debt that we may incur.
If we adopt a debt policy, our Board of Trustees may from time to time modify our debt policy in light of the then-current economic
conditions, relative costs of debt and equity capital, market values of our properties, general market conditions for debt and
equity securities, fluctuations in the market price of our common stock, growth and acquisition opportunities and other factors.
Our decision to use leverage in the future will be at our discretion and will not be subject to the approval of our shareholders.
The Board of Trustees may authorize raising
additional equity capital through the issuance of preferred or common equity securities of Power REIT or our to-be-formed Operating
Partnership. Pursuant to the Power REIT Declaration of Trust, we will have authority to issue up to one hundred million shares
of Power REIT common stock or such other class of shares as determined by the Board of Trustees. Our Declaration of Trust may
be amended by the Board of Trustees, without any action of shareholders, to increase the number of authorized shares, although
we have no plans to do so at this time. We currently have 1,623,250 common shares outstanding on a fully diluted basis as of March
31, 2012. Other than shares that were issued in connection with a reorganization transaction on December 2, 2011, whereby we issued
1,623,250 common shares to Pittsburgh & West Virginia Railroad’s shareholders in exchange for 100% of Pittsburgh &
West Virginia Railroad’s outstanding common shares, we have not issued equity in the past three years. During the first
quarter of 2011, Pittsburgh & West Virginia Railroad issued 113,250 common shares pursuant to a rights offering.
Lending Policy
We expect that Power REIT may make loans
or guarantee the debt of our to-be-formed Operating Subsidiary and future direct or indirect subsidiaries to the extent to which
they require debt financing to fund acquisitions and capital expenditure. Further, Power REIT or its affiliates may make loans
secured by real assets related to infrastructure assets. Power REIT does not intend to make unsecured corporate loans, consumer
mortgage loans or any other type of loan to consumers.
Leasing Policy
Our existing asset, which is owned through
Pittsburgh & West Virginia Railroad, is currently leased to Norfolk Southern Corporation on a fixed lease payment and triple-net
lease basis, whereby Norfolk Southern Corporation is responsible for all property taxes, insurance and operating expenses. We
expect to emphasize leases in the future and expect to utilize a variety of lease payment structures, including fixed lease payments
over the term, lease payments escalators and lease payments that are based on a percentage of gross revenues.
Investments in the Securities of Other Issuers for Purpose
of Exercising Control
Power REIT is primarily engaged in the
acquisition of infrastructure assets, which acquisitions may be structured as asset acquisitions through newly formed, special
purpose subsidiaries or the acquisition of the equity or other economic interests of already-formed trusts, partnerships or limited
liability companies. When we acquire securities of already formed entities, we may acquire controlling or non-controlling interests.
Underwrite Securities of Other Issuers
Power REIT is not and does not intend to
engage in underwriting securities of other issuers.
Purchase and Sale of Investments
Power REIT intends to acquire assets for
long-term ownership and does not intend to engage in the purchase and sale of (or turnover) of investments.
Issuance of Securities in Exchange for Property
In certain cases Power REIT, our to-be-formed
Operating Partnership or a special purpose subsidiary we form or manage may issue securities in exchange for property. Power REIT
has not issued securities in exchange for property during the past three years, other than as part of a reorganization transaction,
whereby Power REIT shares were exchanged in a triangle reverse merger transaction for Pittsburgh & West Virginia Railroad
shares on a one-for-one basis to form a holding company structure. Pittsburgh & West Virginia Railroad survived the reorganization
as a wholly owned subsidiary of Power REIT.
Share Repurchase
We do not currently have an authorized
share repurchase program, nor have we repurchased any of our shares during the past three years. Although we do not contemplate
share repurchase activities at this time, our Board may choose to initiate such as policy at a future date.
Reporting Policies
We make available to our shareholders
our annual reports, including our audited financial statements certified by an independent public accountant. We are subject to
the information reporting requirements of the Exchange Act. Pursuant to those requirements, we are required to file annual and
periodic reports, proxy statements and other information, including audited financial statements, with the SEC.
Dividend Policy
We intend to pay regular quarterly distributions.
For a discussion of our dividend and distribution policy, see the section entitled “Dividend and Distribution Policy.”
Policies with Respect to Other Activities
We intend to conduct all of our investment
activities and hold all of our assets through our to-be-formed Operating Partnership and through special purpose subsidiaries
and/or affiliates of the Operating Partnership. Power REIT shall serve as the manager of our to-be-formed Operating Partnership.
Power REIT’s limited partnership ownership percentage in the Operating Partnership will vary due a number of factors, including
the addition of contributed assets and the amount of third-party ownership of the Operating Partnership’s Units. We have
authority to offer common stock, preferred stock, senior securities, other capital stock or ownership units of our Operating Partnership,
in exchange for property, and to repurchase or otherwise acquire OP Units in our Operating Partnership. As long as our Operating
Partnership is in existence, we expect that the proceeds of all equity capital raised by us will be contributed to our Operating
Partnership in exchange for additional interests in our Operating Partnership, which will dilute the ownership interests of the
limited partners in our Operating Partnership. As described in “The Operating Partnership Agreement,” we expect to
issue common stock to holders of common OP Units upon exercise of their redemption rights. We have not engaged in trading, underwriting
or agency distribution or sale of securities of issuers other than our Operating Partnership and do not intend to do so.
At all times, we intend to operate and
to invest so as to comply with the Code requirements related to REIT qualification unless, due to changing circumstances or changes
to the Code or in Treasury regulations, our Board of Trustees determines that it is no longer in the best interests of Power REIT
and its shareholders to qualify as a REIT. We intend to make investments in such a way that we will not be treated as an investment
company under the Investment Company Act. All of our existing policies will be subject to the interpretation or changes by our
Board of Trustees without the consent of our shareholders.
INVESTMENT POLICIES
The following is a discussion of certain
of our investment policies. These policies have been determined by our board of trustees and, in general, may be amended and revised
from time to time at the discretion of our board of trustees without notice to or a vote of our shareholders.
Investment in Real Estate or Interests in Real Estate
Power REIT is seeking to acquire additional
transportation and energy infrastructure assets in the U.S. that are consistent with its REIT status (“Target Investments”).
Target Investments may consist of land, land improvements, leasehold interests, passive physical infrastructure that qualify for
REIT ownership, or the right to lease payments generated from such assets, and other real estate assets related to or supporting
energy and transportation infrastructure. The Company may structure its investments in the form of leases or loans secured by
real estate and we expect to finance our investments through a mix of equity and secured and unsecured debt, as appropriate. See
“Financing Policy” under “Policies With Respect to Certain Activities.”
Power REIT will seek to acquire those Target
Investments that meet its due diligence criteria and that will provide us with attractive risk-adjusted returns. Our goal is to
acquire Target Investments primarily to generate current income.
We may also participate with third parties
in property ownership, through joint ventures or other types of co-ownership, if we determine that doing so would be the most
effective means of raising capital. We will not, however, enter into a joint venture or other partnership arrangement to make
an investment that would not otherwise meet our investment policies. We also may acquire real estate or interests in real estate
in exchange for the issuance of common stock, operating partnership units, preferred stock or securities that provide options
to purchase stock or convert into our stock. Equity investments in acquired properties may be subject to existing mortgage financing
and other debt or to new debt that may be incurred in connection with acquiring or refinancing these investments. Principal and
interest on our debt will have a priority over any dividends with respect to our common stock. We may make or acquire loans or
debt or debt-like securities, including participating loans related to infrastructure assets that qualify for REIT purposes.
Diversification
We do not have investment limits with respect
to investment concentration in a specific property or concentration limits with respect to security investments, and currently
have 100% of our assets invested in the shares of our wholly owned subsidiary, Pittsburgh & West Virginia Railroad. We expect
to diversify our portfolio to avoid dependence on any one particular tenant, infrastructure asset, geographic location within
the U.S. and/or industry. By seeking to diversify, we seek to reduce the adverse effect of a single under-performing investment
or a downturn in any particular asset or geographic region within the U.S. There can be no assurance that we will succeed in appropriately
diversifying our asset base. See the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors”
sections of this prospectus.
Investment in Real Estate Mortgages
We do not intend to originate, service
or make investments in residential or commercial real estate mortgages (“Mortgages”) or securities collateralized
by Mortgages, including asset-backed securities, REMICs or other similar type of structured bonds. Notwithstanding the foregoing,
we may make loans secured by real assets related to or supporting infrastructure assets.
Securities of or Interests in Persons Primarily Engaged
in Real Estate Activities
.
We may hold securities, such as common
stock or other equity-like or debt-like interests, that are issued by companies, trusts or partnerships engaged in the business
of holding or managing real assets related to infrastructure assets. Power REIT does not have an investment policy with respect
to the percentage of its assets that may be held in such securities.
Investments in Other Securities
.
We do not intend to acquire securities
of issuers that are unrelated to the business of holding or managing real assets related to infrastructure assets.
Dispositions
We may from time to time dispose of properties
if, based upon management’s periodic review of our portfolio, our Board of Trustees determines such action would be in our
best interest.
DIVIDEND AND DISTRIBUTION POLICY
We intend to declare regular quarterly
distributions to holders of Power REIT, the amount of which will be determined, and is subject to adjustment by, our Board of
Trustees. To qualify as a REIT, we must distribute to our shareholders an amount at least equal to 90% of our REIT taxable income
(determined before the deduction for dividends paid and excluding any net capital gain). See the section entitled “Material
U.S. Federal Income Tax Consequences.”
We expect that distributions will be declared
quarterly so that we may continue to qualify as a REIT. The amount, timing and frequency of distributions, however, will be at
the sole discretion of our Board of Trustees and will be declared based upon various factors, many of which are beyond our control,
including:
|
·
|
our
financial
condition,
operating
cash flows
and taxable
income;
|
|
·
|
our
retention
of cash
to pursue
acquisition
opportunities
|
|
·
|
our
operating
and other
expenses
|
|
·
|
debt
service
requirements
|
|
·
|
capital
expenditure
requirements
|
|
·
|
amount
required
to maintain
REIT status
|
|
·
|
limitations
on distributions
in our debt
instruments;
and
|
|
·
|
other
factors
the board
may deem
relevant.
|
We anticipate that distributions will generally
be paid from cash from operations. If our operations do not generate sufficient cash flows and we are unable to borrow, we may
be required to reduce our anticipated quarterly distributions and may lose our REIT status. Our distribution policy enables us
to review the alternative funding sources available to us for distributions from time to time. For information regarding risk
factors that could materially adversely affect our actual results of operations, please see the section entitled “Risk Factors.”
DESCRIPTION OF REAL ESTATE AND OPERATING
DATA
Currently, Power REIT’s only assets
are its wholly owned subsidiary, Pittsburgh & West Virginia Railroad, which is organized as Pennsylvania business trust.
Pittsburgh & West Virginia Railroad
Pittsburgh & West Virginia Railroad
was formed in 1967 for the purpose of acquiring the business and property of a small leased railroad. The railroad was leased
in 1964 to Norfolk and Western Railway Company, now known as Norfolk Southern Corporation, by Pittsburgh & West Virginia Railroad’s
predecessor company for 99 years with the right of unlimited renewal for additional 99 year periods under the same terms and conditions,
including annual rent payments.
Pittsburgh & West Virginia Railroad’s
business consists solely of the fee-simple ownership of the railroad properties subject to the lease, and of collection of rent
thereon. The leased railroad properties consist of 112 miles of main line railroad extending from Pittsburgh Junction, Ohio, through
parts of West Virginia, to Connellsville, Pennsylvania and approximately 20 miles of branch rail lines and real estate used in
the operation of the railroad.
Our railroad lessee pays Pittsburgh &
West Virginia Railroad base rent of $915,000 per year, in cash, which amount is fixed and unvarying for the life of the lease,
including any renewal periods. Norfolk Southern Corporation has paid this base cash rent to Pittsburgh & West Virginia Railroad
since 1967. The lease is expected to expire in 2063, unless Norfolk Southern Corporation exercises its extension option pursuant
to the lease. Norfolk Southern Corporation, at its own expense and without deduction from the rent, will maintain, manage and
operate the leased property and make such improvements thereto as it considers desirable. Norfolk Southern Corporation is responsible
for all taxes and governmental charges related to the railroad property except for taxes relating to base cash rent payments.
We believe our tenant carries adequate insurance on the leased property. Further, Norfolk Southern Corporation indemnifies Pittsburgh
& West Virginia Railroad for, among other things, all claims, demands, suits, causes of action, loss, damage, liability or
expense which we may incur or become liable as a result of the condition or operations of the leased railroad property.
In addition, the lease provides that certain
items be recorded as rent income each year. These entries are equal in amount to the sum of (1) Pittsburgh & West Virginia
Railroad’s federal income tax deductions for depreciation, retirements, and amortization of debt discount expense, and (2)
all other expenses of the Pittsburgh & West Virginia Railroad, except those expenses incurred for the benefit of its shareholders.
Because of the indeterminate settlement date for these items, which is currently in dispute (see “Legal Proceedings”),
such transactions and balances have not been reported in the financial statements since 1982. The principal balance of the settlement
accounts as calculated by Norfolk Southern Corporation was approximately $16 million at December 31, 2011.
Upon default or termination of the lease,
all properties covered by the lease will be returned to Pittsburgh & West Virginia Railroad, together with sufficient cash
and other assets to permit operation of the railroad for one year. In addition, the balance of the settlement account as described
in the preceding paragraph would be provided to Pittsburgh & West Virginia Railroad.
There are currently no mortgage, liens
or other encumbrance, other those provisions imposed upon Pittsburgh & West Virginia Railroad by the lease.
We do not believe our railroad property is subject to material
competition due to the unique right-of-ways represented by the railroad property and because the railroad property was leased
in 1964 under a 99-year lease with fixed pricing which we believe is favorable to our lessee.
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present a summary of historical consolidated
financial data as of the dates and for the periods indicated for Power REIT, including the consolidated results of its wholly
owned subsidiary, Pittsburgh & West Virginia Railroad. The selected consolidated financial data presented below have been
derived from Power REIT’s 2011 audited financial statements, as previously filed with the SEC in our Annual Report on Form
10-K for the year ended December 31, 2011and incorporated by reference herein, and are presented as if Pittsburgh & West Virginia
Railroad was historically consolidated by Power REIT as a wholly-owned subsidiary during the periods presented.
The information in the table below is only
a summary and does not provide all of the information contained in our audited financial statements, including the related notes.
It is important for you to read the following selected consolidated financial data together with the section entitled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and Power REIT’s audited financial statements
and accompanying notes incorporated by reference herein.
Summarized Annual Financial Data
($Thousands, except per share amounts)
|
|
Year
Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
915
|
|
|
$
|
915
|
|
|
$
|
915
|
|
|
$
|
915
|
|
|
$
|
915
|
|
Expenses
|
|
|
278
|
|
|
|
151
|
|
|
|
165
|
|
|
|
145
|
|
|
|
135
|
|
Net Income
|
|
|
637
|
|
|
|
764
|
|
|
|
750
|
|
|
|
770
|
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
10,135
|
|
|
$
|
9,199
|
|
|
$
|
9,190
|
|
|
$
|
9,195
|
|
|
$
|
9,196
|
|
Total Liabilities
|
|
|
10
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Shareholder Equity
|
|
|
10,125
|
|
|
|
9,199
|
|
|
|
9,190
|
|
|
|
9,195
|
|
|
|
9,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share and Distribution Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
$
|
0.40
|
|
|
$
|
0.51
|
|
|
$
|
0.50
|
|
|
$
|
0.51
|
|
|
$
|
0.52
|
|
Cash Dividends Per Share
|
|
$
|
0.40
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
$
|
0.51
|
|
|
$
|
0.52
|
|
Amounts may not add due to rounding.
Summarized Quarterly Financial Data
(in $thousands, except per share amounts)
|
|
2011 Quarter
Ended
|
|
|
|
3/31
|
|
|
6/30
|
|
|
9/30
|
|
|
12/31
|
|
Revenues
|
|
$
|
229
|
|
|
$
|
229
|
|
|
$
|
229
|
|
|
$
|
229
|
|
Net Income
|
|
|
169
|
|
|
|
127
|
|
|
|
174
|
|
|
|
168
|
|
Net Income Per Share
|
|
|
0.11
|
|
|
|
0.08
|
|
|
|
0.11
|
|
|
|
0.10
|
|
Dividends Per Share
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
2010 Quarter
Ended
|
|
|
|
3/31
|
|
|
6/30
|
|
|
9/30
|
|
|
12/31
|
|
Revenues
|
|
$
|
229
|
|
|
$
|
229
|
|
|
$
|
229
|
|
|
$
|
229
|
|
Net Income
|
|
|
158
|
|
|
|
190
|
|
|
|
202
|
|
|
|
214
|
|
Earnings Per Share
|
|
|
0.10
|
|
|
|
0.13
|
|
|
|
0.13
|
|
|
|
0.14
|
|
Cash Dividends Per Share
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
0.13
|
|
|
|
0.13
|
|
Amounts may not add due to rounding.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Set forth below is a discussion and
analysis of the consolidated financial condition and consolidated results of operations of Power REIT, as if its wholly owned
subsidiary, Pittsburgh & West Virginia Railroad, was historically consolidated by Power REIT. Historical results of operations
of Power REIT may not be fully comparable to results that Power REIT may achieve in the future.
There can be no assurance
that Power REIT will be successful in implementing its business plans. See the “Cautionary Note Regarding Forward-Looking
Statements” and “Risk Factors” sections of this prospectus.
Power REIT is seeking to create shareholder
value by expanding its business plan and investment strategy to include investments in additional infrastructure assets consistent
with maintaining its REIT status. Currently, Power REIT is pursuing opportunities in the energy and transportation sectors. We
expect our investment strategy should enable us to capitalize on our public REIT status and the significant opportunities that
exist to unlock and monetize real estate embedded in infrastructure projects. Our business plan and infrastructure investment
strategy is expected to build on our historical ownership of the real estate assets of Pittsburgh & West Virginia Railroad,
which assets are currently triple-net leased to Norfolk Southern Corporation.
As a means to facilitate our investment
strategy, we completed a reorganization and reverse merger on December 2, 2011, whereby we established a more traditional REIT
holding company structure and Pittsburgh & West Virginia Railroad became our wholly owned subsidiary. After the consummation
of the reorganization, Power REIT was listed on the AMEX under ticker “PW” and Pittsburgh & West Virginia Railroad
has been re-organized as a special purpose subsidiary whose sole purpose is the operations and administration of its railroad
property. Power REIT intends to acquire and finance additional transportation and energy infrastructure assets directly or through
the formation of additional special purpose subsidiaries. We expect to complete our reorganization by establishing an umbrella
partnership real estate investment trust (“Operating Partnership”) by contributing the shares of Pittsburgh &
West Virginia Railroad and its other assets, including any special purpose subsidiaries that have been formed, to the Operating
Partnership in exchange for OP Units in the Operating Partnership. Power REIT intends to serve as the manager of the Operating
Partnership upon the formation of the Operating Partnership.
Currently, our sole income-generating asset
is owned by our wholly owned subsidiary, Pittsburgh & West Virginia Railroad. All of Pittsburgh & West Virginia Railroad’s
properties are leased to Norfolk Southern Corporation, for 99 years, with unlimited renewals at Norfolk Southern Corporation’s
option on the same terms. The base 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.
As of March 31, 2012, Power REIT had, on
a consolidated basis, (i) approximately $895,000 of unrestricted cash and cash equivalents, (ii) zero long-term debt obligations,
capital lease obligations, operating lease obligations or purchase obligations, and (iii) zero off-balance sheet arrangements
.
Our current cash outlays, other than dividend
payments, are for general and administrative expenses, which include professional fees, consultants and director's fees, NYSE
Amex listing fees and auditing costs. Professional fees have increased primarily due to the costs of complying with the requirements
of the Sarbanes-Oxley Act of 2002 and our expanded business plan. Stock exchange fees and costs related to shareholder services
have also increased over the years. The leased properties are maintained entirely at NSC's expense. Net income available for distribution
in 2011 and in 2010 was approximately $637,000 and $764,000, respectively. Compared to 2010, Power REIT had additional legal and
consulting costs in 2011 related to the reorganization and expanded business plan as well as significant legal expenses related
to a proxy contest last year by a shareholder. We expect operating expenses will continue to rise due to increased regulatory
compliance and accounting costs and implementation of our investment strategy.
In addition to increased operating expenses,
Power REIT and Pittsburgh & West Virginia Railroad expect to incur additional expenses related to their defense and counterclaims
related to an action initiated by Norfolk Southern Corporation and it sub-lessee in December 2011. We believe Power REIT and Pittsburgh
& West Virginia Railroad’s primary exposure is its legal expenses related to the action. Further, we believe that Pittsburgh
& West Virginia Railroad’s expenses are reimbursable under the terms of the lease with Norfolk Southern Corporation,
but there can be no assurance that it will prevail with any claims for reimbursement of its expenses. Norfolk Southern Corporation
has continued to make timely quarterly payments to Pittsburgh & West Virginia Railroad of the base cash rent ($915,000 per
annum). See “Legal Proceedings.”
In January 2012, Power REIT placed a $15,000
refundable deposit on a parcel of land that is intended to be developed as an energy park for renewable energy lessees/tenants.
We are in the process of completing our due diligence and finalizing other requirements for closing. We intend to fund our purchase
obligations and capital improvements from available cash and /or proceeds from securities that are issued by us. If acquired and
fully developed, this new investment is expected to lead to an increase in income available for distribution.
LEGAL PROCEEDINGS
In December 2010, Norfolk Southern Corporation
approached Pittsburgh & West Virginia Railroad regarding the potential sale of a portion of the leased property that Norfolk
Southern Corporation considers excess to its requirements. In response, Pittsburgh & West Virginia Railroad proceeded to evaluate
the proposed transaction and sought reimbursement of legal expenses related thereto pursuant to the lease, which Norfolk Southern
Corporation refused to pay.
On December 19, 2011, Norfolk Southern
Corporation (together with its sub-lessee, Wheeling & Lake Erie Railway Company, “Plaintiffs”) commenced an action
against Power REIT and Pittsburgh & West Virginia Railroad (“Defendants”) in the United States District Court
for the Western District of Pennsylvania, seeking a declaratory judgment that, among other things, the lease is not in default
as a result of our lessee’s refusal to pay reimbursable amounts to Pittsburgh & West Virginia Railroad and that Plaintiffs
are not required to pay Defendants’ legal expenses related to the sale of Defendant’s property by Plaintiffs.
On February 15, 2012, Power REIT filed
a motion to dismiss the action and Pittsburgh & West Virginia Railroad filed an Answer, Affirmative Defenses and Counterclaims
("Answer"). In its Answer, Pittsburgh & West Virginia Railroad seeks declaratory judgment that the failure to reimburse
its legal expenses and other actions constitute defaults under the Lease and that certain amounts, including what Norfolk Southern
Corporation calls the "settlement account," are indebtedness owed by NSC to Pittsburgh & West Virginia Railroad
which are immediately due and payable. The principal balance of the settlement accounts as calculated by NS was approximately
$16 million at December 31, 2011.
There can be no assurance that Pittsburgh
& West Virginia Railroad will prevail with its defenses or counterclaims or that Power REIT will prevail with its motion to
dismiss. Pittsburgh & West Virginia Railroad believes its primary exposure in the litigation is to its ongoing legal expense,
which it believes is reimbursable by Norfolk Southern Corporation pursuant to the lease. There can be no assurance that Pittsburgh
& West Virginia Railroad will prevail with any claims for reimbursement of its expenses. By initiating the litigation, Norfolk
Southern Corporation is seeking to preserve the lease and past practices related thereto. Norfolk Southern Corporation has continued
to make timely quarterly payments of the base cash rent ($915,000 per annum).
MARKET PRICE RANGE AND DIVIDENDS ON
OUR COMMON SHARES AND RELATED MATTERS
Our common stock is currently traded on
the NYSE Amex equities exchange under the symbol “PW.” On April 10, 2012, our closing share price was $9.46.
The following table sets forth the high
and low closing prices for our common stock and the quarterly dividends declared for each of the periods indicated. The historical
stock prices and dividends declared per share set forth below have been consolidated with the historical results of Pittsburgh
& West Virginia Railroad.
|
|
High
|
|
|
Low
|
|
|
Dividends
Declared Per
Share
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
1
st
Quarter
|
|
$
|
11.53
|
|
|
$
|
9.28
|
|
|
$
|
0.10
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
4
th
Quarter
|
|
$
|
14.87
|
|
|
$
|
10.72
|
|
|
$
|
0.10
|
|
3
rd
Quarter
|
|
$
|
12.99
|
|
|
$
|
11.47
|
|
|
$
|
0.10
|
|
2
nd
Quarter
|
|
$
|
12.32
|
|
|
$
|
10.48
|
|
|
$
|
0.10
|
|
1
st
Quarter
|
|
$
|
12.90
|
|
|
$
|
9.15
|
|
|
$
|
0.10
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
4
th
Quarter
|
|
$
|
11.80
|
|
|
$
|
10.66
|
|
|
$
|
0.13
|
|
3
rd
Quarter
|
|
$
|
11.97
|
|
|
$
|
10.30
|
|
|
$
|
0.13
|
|
2
nd
Quarter
|
|
$
|
11.03
|
|
|
$
|
10.00
|
|
|
$
|
0.12
|
|
1
st
Quarter
|
|
$
|
11.33
|
|
|
$
|
10.50
|
|
|
$
|
0.12
|
|
Power REIT was formed as a subsidiary of
Pittsburgh & West Virginia Railroad on August 26, 2011 for the purposes of consummating a reorganization transaction, whereby
Pittsburgh & West Virginia Railroad became a wholly owned subsidiary of Power REIT. The reorganization transaction was completed
on December 2, 2011, at which time Power REIT began trading on the NYSE Amex under the same ticker symbol, “PW.”
As of March 31, 2012, there were approximately
550 registered shareholders of our common shares.
As of March 31, 2012, Power REIT (i) did
not have any equity compensations plans that had been approved by shareholders and (ii) did not have any equity compensation plans
that were approved without shareholder consent. Power REIT expects to seek shareholder approval for a share incentive plan at
its 2012 annual meeting. See “Management.”
Plan Category
|
Number
of securities to be
issued upon exercise
of outstanding options,
warrants and rights
(a)
|
Weighted-average
exercise price of outstanding
options, warrants and
rights
(b)
|
Number
of securities remaining
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column
(a))
(c)
|
Equity compensation plans approved by security holders
|
None
|
N/A
|
N/A
|
Equity compensation plans not approved by security holders
|
None
|
N/A
|
N/A
|
Total
|
None
|
N/A
|
N/A
|
PRINCIPAL SHAREHOLDERS OF POWER REIT
The following table sets forth certain
information regarding beneficial ownership and voting power of all of our common shares, as of March 31, 2012, by: (i) each person
who we know to own beneficially more than 5% of our common stock, (ii) each of our trustees and officers and (iii) all of our
trustees and officers as a group.
Unless otherwise indicated, the address
for each listed person is c/o Power REIT, 55 Edison Avenue, West Babylon, NY 11704. Unless otherwise indicated, all shares are
owned directly, and the indicated person has sole voting and investment power.
|
|
Owned at March 31, 2012
|
|
Name of Shareholder
|
|
Number of Shares
|
|
|
% Outstanding
|
|
David H. Lesser
(1) (2)
|
|
|
148,500
|
|
|
|
9.15
|
%
|
Virgil E. Wenger
|
|
|
1,000
|
|
|
|
0.06
|
%
|
William S. Susman
|
|
|
1,000
|
|
|
|
0.06
|
%
|
Patrick R. Haynes, III
|
|
|
1,937
|
|
|
|
0.12
|
%
|
Arun Mittal
|
|
|
8,000
|
|
|
|
0.49
|
%
|
All trustees and executive officers as a group
(1)
(2)
|
|
|
160,437
|
|
|
|
9.88
|
%
|
(1) David H. Lesser has beneficial ownership of 148,500 common
shares as follows: (a) 11,530 directly; (b) 85,210 indirectly through Hudson Bay Partners, LP, a wholly-owned affiliate of Mr.
Lesser; and (c) 51,760 indirectly through HBP PW, LLC, an affiliate managed by Mr. Lesser.
(2) In addition to the shareholdings disclosed above, the MEL
Generation Skipping Trust, a trust set up for the children of David H. Lesser, (the "MEL Trust") owns 10,383 common
shares of the Trust. David H. Lesser disclaims any beneficial, pecuniary or residual interest in the common shares owned by the
MEL Trust, does not serve as trustee and does not have the power to revoke the MEL Trust.
SELLING SECURITY HOLDERS
Information required to be disclosed in
respect of any holders of our securities that offer or sell their securities pursuant to this prospectus shall be provided in
the applicable prospectus supplement.
USE OF PROCEEDS
Unless otherwise specified in a prospectus
supplement, we intend to use the net proceeds from our sale of securities primarily to acquire real property infrastructure assets,
funding of our subsidiaries and to acquire OP Units in our to-be-formed Operating Partnership, if any. We also may
use sale proceeds to retire all or a portion of any debt we incur, to redeem any outstanding preferred stock, or for working capital
purposes, including the payment of distributions, interest and operating expenses, although there is currently no intent to issue
securities primarily for this purpose. We will not receive proceeds from any sales of securities by selling security holders.
See “Use of Proceeds.”
The intended application of proceeds from
the sale of any particular offering of securities using this prospectus will be described in the accompanying prospectus supplement
relating to such offering. The precise amount and timing of the application of these proceeds will depend on our funding requirements
and the availability and costs of other funds.
DESCRIPTION OF SECURITIES
The following description of our securities
is a summary of the detailed provisions of our Declaration of Trust and By-laws governing the terms of our securities. These statements
do not purport to be complete, or to give full effect to the provisions of applicable statutory and common law, and are subject
to, and qualified in their entirety by reference to, the terms of our Declaration of Trust and By-Laws.
Pursuant to our Declaration of Trust, we
are currently authorized to issue 100,000,000 common shares of beneficial interest, $0.001 par value, or such other class of shares
as may be determined by the Board of Trustees. Our Board of Trustees, without any action by our shareholders, may amend our Declaration
of Trust from time to time to issue securities of any type, class or series and increase or decrease the aggregate number of authorized
common shares or other securities of any type, including without limitation any class or series of securities. Other than our
common shares, we do not currently have any other class of stock issued and outstanding.
Pursuant to our Declaration of Trust, the
Board of Trustees may authorize, without approval of any shareholder, the issuance from time to time of shares of any class or
series or securities or rights convertible into shares of any class or series for such consideration (whether in cash, property,
past or future services, obligation for future payment or otherwise) as the Board of Trustees may deem advisable (or without consideration
in the case of a share dividend or share split).
Except as may be provided by the Board
of Trustees in setting the terms of any particular securities that we may issue, no holder of shares of our stock or other securities
has any preemptive right to purchase or subscribe for any additional shares of our stock or other securities.
Common Shares
General
As of April 10, 2012, 1,623,250 of our
common shares were issued and outstanding. The outstanding shares are, and the common shares offered hereby upon delivery and
payment will be, fully paid and non-assessable.
Voting Rights
Each holder of common shares is entitled
to one vote for each share registered in such holder’s name on our books on all matters submitted to a vote of shareholders.
The holders of our common shares do not have cumulative voting rights. As a result, the holders of common shares entitled to exercise
more than 50% of the voting rights in an election of trustees can elect 100% of the trustees to be elected if they choose to do
so. In such event, the holders of the remaining common shares voting for the election of trustees will not be able to elect any
persons to our board of trustees. The company’s quorum requirements for the election of trustees and for other general matters
submitted to a vote of shareholders, is 33% unless otherwise specified by statute or in our Governing Documents. Our trustees
are elected to serve for one-year terms and are re-elected annually at the annual shareholders’ meeting.
Dividend Rights
Holders of common shares are entitled to
such dividends as our board of trustees may declare out of funds legally available therefore. Debt agreements or preferred stock
agreements that we enter into may contain restrictions on certain payments by us, including dividends.
Liquidation Rights and Other Preferences
Subject to the prior rights of creditors
and any preferred shares outstanding, the holders of the common shares are entitled in the event of liquidation, dissolution or
winding up to share pro rata in the distribution of all remaining assets. There are no preemptive or conversion rights or redemption
or sinking fund provisions in respect of the common shares.
Maryland Law permits a Maryland real estate
investment trust to include in its declaration of trust a provision limiting the liability of its trustees and officers to the
trust and its shareholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or
profit in money, property or services or (b) active or deliberate dishonesty established in a judgment or other final adjudication
to be material to the cause of action. Our Declaration of Trust contains a provision that limits the liability of our trustees
and officers to the maximum extent permitted by Maryland law.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our
common shares is Broadridge Corporate Issuer Solutions, Inc.
Preferred Shares
As of the date of this prospectus, other
than as described below, no shares of preferred stock have been issued. Shares of preferred stock may be issued in one or more
series from time to time by our Board of Trustees, and the Board of Trustees is expressly authorized to fix the designations and
the powers, preferences and rights, and the qualifications, limitations and restrictions of each series. Subject to the determination
of our Board of Trustees, any shares of preferred stock that may be issued in the future would generally have preferences over
our common stock with respect to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution
or winding up of Power REIT.
Rights
We may issue rights to our shareholders
to purchase more of our securities (including, but not limited to, rights to purchase our common stock) or other rights, including
rights to receive payment in cash or securities based on the value, rate or price of one or more specified commodities, currencies,
securities or indices, or any combination of the foregoing. Rights may be issued independently or together with any other securities
and may be attached to, or separate from, such securities. The terms of any rights to be issued will be set forth in the applicable
prospectus supplement.
Warrants
We may issue warrants to purchase our securities
(including, but not limited to, warrants to purchase our common stock) or other warrants or rights, including rights to receive
payment in cash or securities based on the value, rate or price of one or more specified commodities, currencies, securities or
indices, or any combination of the foregoing. Warrants may be issued independently or together with any other securities and may
be attached to, or separate from, such securities. Each series of warrants will be issued under a separate warrant agreement to
be entered into between us and a warrant agent. The terms of any warrants to be issued and a description of the material provisions
of the applicable warrant agreement will be set forth in the applicable prospectus supplement.
Units
As specified in the applicable prospectus
supplement, we may issue units consisting of one or more shares of common stock, shares of preferred stock, rights or warrants,
or any combination of such securities. Such combinations may include, without limitation, units consisting of common stock and
warrants or preferred stock and warrants.
Certain Restrictions on Size of Holdings and Transferability
In order to assist us in complying with
the limitations on the concentration of ownership of REIT stock imposed by the Code, among other purposes, our Declaration of
Trust provides that no person or entity may own, directly or indirectly, more than 9.9% in economic value of the aggregate of
the outstanding common shares of Power REIT. However, our charter authorizes our board of trustees to exempt from time to time
the ownership limits applicable to certain named individuals or entities. This provision or other provisions in our Declaration
of Trust or By-laws, or provisions that we may adopt in the future, may limit the ability of our shareholders to sell their shares
at a premium over then-current market prices by discouraging a third party from seeking to obtain control of us.
Our charter also prohibits any person from
(1) beneficially or constructively owning shares of our capital stock that would result in our being “closely held”
under Section 856(h) of the Code at any time during the taxable year, (2) transferring shares of our capital stock if such transfer
would result in our stock being beneficially or constructively owned by fewer than 100 persons and (3) beneficially or constructively
owning shares of our capital stock if such ownership would cause us otherwise to fail to qualify as a REIT.
Listing
Shares of our common stock are currently
traded on the NYSE Amex under the symbol “PW.” There can be no assurance that any of our preferred stock, rights,
warrants or units will be listed on any securities exchange. Our plans as to whether or not to list any such securities shall
be disclosed in the supplements to this prospectus relating to the offering of such securities.
PLAN OF DISTRIBUTION
The securities to which this prospectus
relates may be offered and sold from time to time pursuant to underwritten public offerings, negotiated transactions, block trades
or other transactions or offerings, or a combination of these methods. The terms of any securities offered and the terms and conditions
of any offering, including the terms and conditions of the particular plan of distribution, will be determined prior to the time
of sale of the securities and disclosed in supplements to this prospectus.
We, or holders of our securities that are
offering and selling the securities, may offer and sell:
|
·
|
through
one or more
underwriters
or dealers
in a public
offering;
and/or
|
|
·
|
through
agents,
including
in connection
with a distribution
to our security
holders
of rights
to purchase
such securities;
and/or
|
|
·
|
directly
to one or
more purchasers,
including
through
the exercise
of warrants
or rights
or the conversion
or exchange
of any security;
and/or
|
|
·
|
in any
other manner
permitted
by applicable
law and
rules.
|
The prospectus supplement relating to the
particular offering will identify any underwriters, dealers or agents involved in the offering, and will set forth any applicable
purchase price, fee, commission or discount arrangement with such underwriters, dealers or agents, and among such underwriters,
dealers or agents, or the basis upon which such amounts may be calculated. Securities so offered by us or by selling security
holders may not be sold through agents, underwriters or dealers without delivery of a prospectus supplement describing the methods
and terms of the offering.
The securities may or may not be listed
on a securities exchange.
To facilitate the offering of securities,
certain persons participating in the offering may engage in transactions that stabilize, maintain or otherwise affect the price
of the securities. This may include over-allotments or short sales of the securities, which involves the sale by persons participating
in the offering of more securities than we sold to them. In these circumstances, these persons would cover such over-allotments
or short positions by making purchases in the open market or by exercising their over-allotment option. In addition, these persons
may stabilize or maintain the price of the securities by bidding for or purchasing securities in the open market or by imposing
penalty bids, whereby selling concessions allowed to participants in the offering may be reclaimed if securities sold by them
are repurchased in connection with stabilization transactions. The effect of any of the foregoing may be to stabilize or maintain
the market price of the securities at a level above that which might otherwise prevail in the open market. These transactions
may be discontinued at any time.
We may enter into derivative transactions
with third parties, or sell securities not covered by this prospectus to third parties. If the applicable prospectus supplement
relating to this prospectus so indicates, in connection with any derivative transaction, the third parties may sell securities
covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party
may use securities pledged or borrowed from us or others to settle those sales or to close out any related open borrowings of
stock, and may use securities received from us in settlement of those derivatives to close out any related open borrowings of
stock. The third party in such sale transactions will be an underwriter and, if not identified in this prospectus, will be identified
in the applicable prospectus supplement or in a post-effective amendment to the registration statement of which this prospectus
is a part. In addition, we may otherwise loan or pledge securities to a financial institution or other third party that in turn
may sell the securities short using this prospectus. Such financial institution or other third party may transfer its economic
short position to investors in our securities or in connection with a concurrent offering of other securities.
Any underwriters, dealers or agents that
may be engaged in any of the transactions described above may perform separate services for us in the ordinary course of business.
MATERIAL UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS
The following discussion summarizes the
material United States federal income tax consequences of the purchase, ownership and disposition of our common shares by persons
who hold the securities as capital assets (within the meaning of section 1221 of the Internal Revenue Code of 1986, as amended
(the “Code”)). It does not purport to address the federal income tax consequences applicable to all categories of
holders, including holders subject to special treatment under federal income tax laws, such as insurance companies, regulated
investment companies, tax-exempt organizations, dealers in securities or foreign persons (defined as all persons other than U.S.
persons). This summary does not address persons who are not U.S. Shareholders (as defined herein).
This summary is based on current provisions
of the Code, the Treasury regulations promulgated thereunder and judicial and administrative authorities. All these authorities
are subject to change, and any change may be effective retroactively. This summary is not tax advice, and is not intended as a
substitute for careful tax planning.
WE RECOMMEND THAT OUR INVESTORS CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL,
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF INVESTING IN OUR SECURITIES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
General
The law firm of Leech Tishman Fuscaldo
& Lampl LLC (“LTFL”), provided an opinion that the Company will be organized and operated in conformity with the
requirements for qualification and taxation as a REIT under the Code, and our current and proposed method of operation, as described
herein and as represented by us, will enable us to continue to meet the requirements for qualification and taxation as a REIT.
LTFL’s opinion is not binding on the Internal Revenue Service (“IRS”) or the courts. It is based on various
assumptions relating to our organization and operation, including that our subsidiary, Pittsburgh & West Virginia Railroad
was organized and qualified as a REIT for each its taxable years commencing with 1967 through its final tax filing on December
2, 2011, that Power REIT has operated and will continue to operate in the manner described in our organizational documents and
this prospectus, and representations made by us concerning certain factual matters related to our organization and manner of operation.
Our qualification and taxation as a REIT depends upon our ability to meet on a continuous basis, through actual annual operating
results, (i) income and asset composition tests, (ii) specified distribution levels, (iii) diversity of beneficial ownership,
and (iv) various other qualification tests (discussed below) imposed by the Code. LTFL has not reviewed and will not monitor our
ongoing compliance with these tests, and expresses no opinion concerning whether we actually have satisfied or will satisfy these
tests on a continuous basis. No assurance can be given that we actually have satisfied or will satisfy such tests on a continuous
basis. Our failure to qualify as a REIT in prior years could adversely affect LTFL’s opinion and our eligibility for REIT
status for our taxable year ended December 31, 2010 and subsequent years. See “Failure to Qualify.”
The following is a general summary of the
material Code provisions that govern the federal income tax treatment of a REIT and its shareholders. These provisions are technical
and complex and are subject to interpretation.
In general, if we qualify as a REIT, we
will not be subject to federal corporate income taxes on the net income that we distribute currently to our shareholders. This
treatment substantially eliminates the “double taxation” (taxation at both the corporation and shareholder levels)
that generally results from an investment in stock of a “C” corporation (that is, a corporation generally subject
to the full corporate-level tax). We will, however, still be subject to federal income and excise tax in certain circumstances,
including the following:
|
·
|
we will be taxed at regular corporate rates on any undistributed “REIT taxable income,”
including undistributed net capital gains;
|
|
·
|
we may be subject to the “alternative minimum tax” on our undistributed items of tax preference;
|
|
·
|
if we have (i) net income from the sale or other disposition of foreclosure property that we hold primarily
for sale to customers in the ordinary course of business or (ii) other non-qualifying income from foreclosure property, then
we will be subject to tax on that income at the highest corporate rate. In general, “foreclosure property” is
any property we acquire by foreclosure (or otherwise) on default of a lease of such property or a loan secured by such property;
|
|
·
|
if we have net income from prohibited transactions, such income will be subject to a 100% tax. In general,
“prohibited transactions” are sales or other dispositions of property (other than foreclosure property) that we
hold primarily for sale to customers in the ordinary course of business;
|
|
·
|
if we fail to satisfy either the 75% gross income test or the 95% gross income test (discussed below),
but preserve our qualification as a REIT by satisfying certain other requirements, then we will be subject to a 100% tax on
the product of (a) the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, multiplied
by (b) a fraction intended to reflect our profitability;
|
|
·
|
if we fail to distribute for each calendar year at least the sum of (i) 85% of our REIT ordinary income,
(ii) 95% of our REIT capital gain net income, and (iii) any undistributed taxable income from prior years, then we will be
subject to a 4% excise tax on the excess of the required distributions over the actual distributions;
|
|
·
|
if we acquire any asset from a “C” corporation in a transaction in which the basis of the
asset in our hands is determined by reference to the basis of the asset (or any other property) in the hands of the C corporation,
and if we recognize gain on the disposition of such asset during the ten-year period beginning on the date we acquire the
asset, then the asset’s “built-in” gain (the excess of the asset’s fair market value at the time we
acquired it over the asset’s adjusted basis at that time) will be subject to tax at the highest regular corporate rate;
|
|
·
|
we may elect to retain and pay income tax on some or all of our long-term capital gain, as described
below;
|
|
·
|
if it is determined that amounts of certain income and expense were not allocated between us and a
taxable REIT subsidiary (as defined below) on the basis of arm’s length dealing, or to the extent we charge a taxable
REIT subsidiary interest in excess of a commercially reasonable rate, then we will be subject to a tax equal to 100% of those
amounts; and
|
|
·
|
we may be required to pay monetary penalties if we fail to satisfy certain requirements for REIT qualification
as the price for maintaining our REIT status.
|
Requirements for Qualification
The Code defines a REIT as a corporation,
trust, or association:
|
·
|
that is managed by one or more trustees or directors;
|
|
·
|
the beneficial ownership of which is evidenced by transferable shares or by transferable certificates
of beneficial interest;
|
|
·
|
that would be taxable as a domestic corporation, but for Sections 856 through 859 of the Code;
|
|
·
|
that is neither a financial institution nor an insurance company subject to certain provisions of the
Code;
|
|
·
|
the beneficial ownership of which is held by 100 or more persons;
|
|
·
|
no more than 50% in value of the outstanding stock of which is owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain entities) during the last half of each taxable year;
|
|
·
|
that meets certain other tests, described below, regarding the composition of its income and assets;
and
|
|
·
|
whose taxable year is the calendar year.
|
The first four requirements must be satisfied
during the entire taxable year, and the fifth must be satisfied during at least 335 days of a taxable year of 12 months (or during
a proportionate part of a taxable year of less than 12 months). We will be treated as satisfying the sixth requirement for any
taxable year for which we comply with the regulatory requirements to request information from our shareholders regarding their
actual ownership of our shares and we do not know, or exercising reasonable due diligence would not have known, that we failed
to satisfy such condition.
A trust may not elect to become a REIT
unless its taxable year is the calendar year. Our taxable year is the calendar year.
Income Tests.
To remain qualified
as a REIT, we must satisfy two gross income tests in each taxable year. First, at least 75% of our gross income (excluding gross
income from “prohibited transactions”) must come from real estate sources such as rents from real property (as defined
below), dividends and gain from the sale or disposition of shares in other REITs, interest on obligations secured by real property,
and earnings from certain temporary investments. Second, at least 95% of our gross income (excluding gross income from “prohibited
transactions”) must come from real estate sources and from dividends, interest and gain from the sale or disposition of
stock or securities (or from any combination of the foregoing).
Rents received by a REIT (which include
charges for services customarily furnished or rendered in connection with real property and rent attributable to personal property
leased in connection with real property) will generally qualify as “rents from real property,” subject to certain
restrictions, including:
|
·
|
the amount of rent must not be based, in whole or in part, on the income or profits of any person (with
an exception for rents based on fixed percentages of the tenant’s gross receipts or sales);
|
|
·
|
the REIT (or a direct or indirect owner of 10% or more of the REIT) may not own (directly or constructively)
10% or more of the tenant (a “Related Party Tenant”);
|
|
·
|
the amount of rent attributable to personal property leased in connection with a lease of real property
may not exceed 15% of the total rent received under the lease; and
|
|
·
|
the REIT generally may not operate or manage the property or furnish or render services to the tenants
except through (i) a taxable REIT subsidiary (described below) or (2) an “independent contractor” that satisfies
certain stock ownership restrictions, that is adequately compensated and from whom the REIT derives no income. We are not
required to use a taxable REIT subsidiary or independent contractor to the extent that any service we provide is “usually
or customarily rendered” in connection with the rental of space for occupancy only and is not considered “rendered
to the tenants.”
|
If, for any taxable year, we fail to satisfy
the 75% gross income test, the 95% gross income test, or both, we may nevertheless preserve our REIT status if we satisfy certain
relief provisions under the Code. In general, relief will be available if (i) our failure to meet one or both of the gross income
tests is due to reasonable cause rather than willful neglect and (ii) we attach a schedule to our federal corporate income tax
return indicating the nature and amount of our non-qualifying income. However, it is impossible to state whether in all circumstances
we would be entitled to the benefit of the relief provisions. As discussed above under “General ,” even if we qualify
for relief, a tax would be imposed with respect to the amount by which we fail the 75% gross income test or the 95% gross income
test.
At present, we do not operate or manage
the properties that we lease to Railroad Lessee, nor do we render services to the Railroad Lessee.
Asset Tests.
To maintain our qualification
as a REIT we must also satisfy, at the close of each quarter of each taxable year, the following tests relating to the nature
of our assets:
|
·
|
at least
75% of the
value of
our total
assets must
be represented
by real
estate assets,
including
(a) interests
in real
property
and interests
in obligations
secured
(or deemed,
for these
purposes,
to be secured)
by real
property,
(b) our
proportionate
share (determined
in accordance
with our
capital
interest)
of real
estate assets
held by
the operating
partnership
and any
other partnership
in which
we are a
partner,
(c) stock
or debt
instruments
held for
not more
than one
year purchased
with the
proceeds
of a stock
offering
or long-term
(that is,
at least
five-years)
public debt
offering,
(d) stock
in other
REITs and
(e) cash,
cash items
and federal
government
securities;
|
|
·
|
no more
than 25%
(20% for
taxable
years beginning
before August
1, 2008)
of the value
of our total
assets may
be securities
of one or
more taxable
REIT subsidiaries
(defined
below);
and
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except
for (a)
securities
in the 75%
asset class,
(b) securities
in a taxable
REIT subsidiary
or qualified
REIT subsidiary
(defined
below),
and (c)
certain
partnership
interests
and debt
obligations:
(i) the
value of
any one
issuer’s
securities
we own may
not exceed
5% of the
value of
our total
assets;
(ii) we
may not
own more
than 10%
of any one
issuer’s
outstanding
voting securities;
and (iii)
we may not
own more
than 10%
of the total
value of
any one
issuer’s
outstanding
securities.
However,
if (i) the
value of
the assets
causing
us to violate
the 5% or
10% tests
does not
exceed the
lesser of
(A) 1% of
the value
of our assets
at the end
of the quarter
in which
the violation
occurs,
or (B) $10,000,000,
and (ii)
we cure
the violation
by disposing
of such
assets within
6 months
after the
end of the
quarter
in which
we identify
the failure,
then we
will not
lose our
REIT status.
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Currently, Power REIT has one wholly owned
subsidiary, Pittsburgh & West Virginia Railroad that qualifies as a “qualified REIT Subsidiary” or QRS. Upon completion
of the UPREIT Reorganization, Pittsburgh & West Virginia Railroad will become a wholly owned subsidiary of the Operating Partnership.
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Taxable
REIT Subsidiary.
To treat
a subsidiary
as a taxable
REIT subsidiary,
we and the
subsidiary
must make
a joint
election
by filing
a Form 8875
with the
IRS. A taxable
REIT subsidiary
pays tax
at regular
corporate
rates on
its earnings,
but such
earnings
may include
types of
income that
might jeopardize
our REIT
status if
earned by
us directly.
To prevent
the shifting
of income
and expenses
between
us and a
taxable
REIT subsidiary,
the Code
imposes
on us a
tax equal
to 100%
of certain
items of
income and
expense
that are
not allocated
between
us and the
taxable
REIT subsidiary
at arm’s
length.
The 100%
tax is also
imposed
to the extent
we charge
a taxable
REIT subsidiary
interest
in excess
of a commercially
reasonable
rate.
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Qualified
REIT Subsidiary.
A qualified
REIT subsidiary
is disregarded
for federal
income tax
purposes,
which means,
among other
things,
that for
purposes
of applying
the gross
income and
assets tests,
all assets,
liabilities
and items
of income,
deduction
and credit
of the subsidiary
will be
treated
as ours.
A subsidiary
is a qualified
REIT subsidiary
if we own
all the
stock of
the subsidiary
(and no
election
is made
to treat
the subsidiary
as a taxable
REIT subsidiary).
We may also
hold assets
through
other entities
that may
be disregarded
for federal
income tax
purposes,
such as
one or more
limited
liability
companies
in which
we are the
only member.
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If a REIT is a partner in a partnership,
Treasury regulations provide that the REIT will be deemed to own its proportionate share (based on its share of partnership capital)
of the assets of the partnership and will be deemed to earn its proportionate share of the income of the partnership. The character
of the assets and gross income of the partnership will retain the same character in the hands of the REIT for purposes of the
REIT requirements, including satisfying the gross income tests and the asset tests. Thus, our proportionate share (based on our
share of partnership capital) of the assets, liabilities and items of income of any partnership in which we are a partner will
be treated as our assets, liabilities and items of income for purposes of applying the requirements described in this section.
Actions taken by partnerships in which we may come to own an interest, either directly or through one or more tiers of partnerships
or qualified REIT subsidiaries, can affect our ability to satisfy the REIT income and assets tests and the determination of whether
we have net income from prohibited transactions (described above). At present the Company is not a partner in any partnership,
but following the Transactions, will own 100% of the general partnership interests and limited partnership interests in the Operating
Partnership.
If we satisfy the asset tests at the close
of any quarter, we will not lose our REIT status if we fail to satisfy the asset tests at the end of a later quarter solely because
of changes in asset values. If our failure to satisfy the asset tests results, either in whole or in part, from an acquisition
of securities or other property during a quarter, the failure can be cured by disposing of sufficient non-qualifying assets within
30 days after the close of that quarter. We intend to maintain adequate records of the value of our assets to ensure compliance
with the asset tests and to take such other action within 30 days after the close of any quarter as may be required to cure any
noncompliance. In some instances, however, we may be compelled to dispose of assets that we would prefer to retain.
If we were to fail to satisfy the asset
tests at the end of any quarter and the relief provisions discussed earlier do not apply, then we will still maintain our REIT
status provided (i) our failure to satisfy the relevant asset test was due to reasonable cause and was not due to willful neglect,
(ii) we file a schedule with the IRS describing the assets causing the violation, (iii) we cure the violation by disposing of
the assets within 6 months after the end of the quarter in which we identify the failure, and (iv) we pay a penalty tax of the
greater of (A) $50,000 or (B) the product derived by multiplying the highest federal corporate income tax rate by the net income
generated by the non-qualifying assets during the period of the failure.
Annual Distribution Requirements.
To
qualify as a REIT, we must also distribute to our shareholders, dividends (other than capital gain dividends) in an amount at
least equal to (i) the sum of (A) 90% of our “REIT taxable income” (computed without regard to the dividends paid
deduction and our “net capital gain”) plus (B) 90% of our after-tax net income (if any) from foreclosure property,
minus (ii) the sum of certain items of non-cash income (including, among other things, cancellation of indebtedness income and
original issue discount). In general, the distributions must be paid during the taxable year to which they relate. We may also
satisfy the distribution requirements with respect to a particular year provided we (1) declare a sufficient dividend before timely
filing our tax return for that year and (2) pay the dividend within the 12-month period following the close of the year, and on
or before the date of the first regular dividend payment after such declaration.
To the extent we fail to distribute 100%
of our net capital gain, or we distribute at least 90% but less than 100% of our “REIT taxable income” (as adjusted),
we will be subject to tax at regular corporate rates on the undistributed amounts. Furthermore, if we fail to distribute during
each calendar year at least the sum of (i) 85% of our REIT ordinary income for such year, (ii) 95% of our REIT capital gain income
for such year and (iii) any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the excess
of such amounts over the amounts actually distributed.
Dividends declared by us in October, November
or December of any calendar year and payable to shareholders of record on a specified date in such month, are treated as paid
by us and as received by our shareholders on the last day of the calendar year (including for excise tax purposes), provided we
actually pay the dividends no later than in January of the following calendar year.
We intend to make timely distributions
sufficient to meet the annual distribution requirements. It is possible that from time to time, we may not have sufficient cash
or other liquid assets to meet the 90% distribution requirement. The shortfall may, for example, be due to differences between
the time we actually receive income or pay an expense, and the time we must include the income or may deduct the expense for purposes
of calculating our REIT taxable income. As a further example, the shortfall may be due to an excess of non-deductible cash outlays
such as principal payments on debt and capital expenditures, over non-cash deductions such as depreciation.
Under certain circumstances, if we fail
to meet the distribution requirement for a taxable year, we may correct the situation by paying “deficiency dividends”
to our shareholders in a later year. By paying the deficiency dividend, we may increase our dividends paid deduction for the earlier
year, thereby reducing our REIT taxable income for the earlier year. However, if we pay a deficiency dividend, we will have to
pay to the IRS interest based on the amount and timing of any deduction taken for such dividend.
Failure to Qualify.
Beginning with
our 2005 taxable year, if we would otherwise fail to qualify as a REIT because of a violation of one of the requirements described
above (other than an asset or income test violation for which one of the relief provisions described earlier is available), then
our qualification as a REIT will not be terminated if the violation is due to reasonable cause and not willful neglect and we
pay a penalty tax of $50,000 for each violation.
If we fail to qualify for taxation as REIT
in any taxable year and the relief provisions do not apply, we will be subject to tax (including any applicable alternative minimum
tax) on our taxable income at regular corporate rates. Distributions to shareholders in any year in which we do not qualify will
not be deductible by us, nor will they be required to be made. Unless we are entitled to relief under specific statutory provisions,
we also will be disqualified from taxation as a REIT for the four taxable years following the year during which our qualification
was lost. It is not possible to state whether in all circumstances we would be entitled to such statutory relief. Accordingly,
our failure to qualify as a REIT for a prior taxable year could adversely affect our qualification as a REIT for the current or
subsequent taxable years, even if we otherwise satisfy the REIT requirements for the current or subsequent taxable years.
For any year in which we fail to qualify
as a REIT, any distributions that we make generally will be taxable to our shareholders as ordinary income to the extent of our
current or accumulated earnings and profits. Subject to certain limitations in the Code, corporate shareholders receiving such
distributions may be eligible to claim the dividends received deduction, and such distributions made to non-corporate shareholders
may qualify for preferential rates of taxation.
Taxation of U.S. Shareholders of
Common Shares
As used in this section, the term “U.S.
Shareholder” means a holder of common shares or preferred shares who, for United States federal income tax purposes, is:
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a citizen or resident of the United States;
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a domestic corporation;
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an estate whose income is subject to United States federal income taxation regardless of its source;
or
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a trust if a United States court can exercise primary supervision over the trust’s administration
and one or more United States persons have authority to control all substantial decisions of the trust.
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Dividends.
As long as we qualify
as a REIT, distributions that are made to our taxable U.S. Shareholders out of current or accumulated earnings and profits (and
are not designated as capital gain dividends) will be taken into account by them as ordinary income. Such distributions will be
ineligible for the corporate dividends received deduction, and except in circumstances that we do not expect to arise, also will
not qualify for the lower rate applicable to qualifying dividends paid to non-corporate shareholders. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the extent they do not exceed our actual net capital gain
for the taxable year) without regard to the period for which a U.S. Shareholder has held our shares. Thus, with certain limitations,
capital gain dividends received by a U.S. Shareholder who is an individual may be eligible for preferential rates of taxation.
However, U.S. Shareholders that are corporations may be required to treat up to 20% of certain capital gain dividends as ordinary
income. We may elect to pay dividends partly in our common shares, in which event a U.S. Shareholder generally will be taxable
on the value of our shares received as a dividend.
We may elect not to distribute part or
all of our net long-term capital gain, and pay corporate tax on the undistributed amount. In that case, a U.S. Shareholder will
(i) include in its income, as long-term capital gain, its proportionate share of the undistributed gain, and (ii) claim, as a
refundable tax credit, its proportionate share of the taxes paid. In addition, a U.S. Shareholder will be entitled to increase
its tax basis in our shares by an amount equal to its share of the undistributed gain reduced by its share of the corporate taxes
paid by us on the undistributed gain. As discussed earlier (see “Requirements for Qualification - Annual Distribution Requirements”),
we may pay certain dividends in January that will be taxable to shareholders as if paid in the immediately preceding calendar
year.
Distributions in excess of our current
and accumulated earnings and profits will be treated as a non-taxable return of capital to a U.S. Shareholder to the extent that
they do not exceed the adjusted basis of the shareholder’s shares as to which the distributions were made, and will reduce
the adjusted basis of the shareholder’s shares. To the extent these distributions exceed the shareholder’s adjusted
basis in its shares, the distributions will be included in the shareholder’s income as long-term capital gain (or short-term
capital gain if the shares have been held for one year or less).
Shareholders may not claim our net operating
losses or net capital losses (if any) on their individual income tax returns. Distributions with respect to, and gain from the
disposition of, our shares will be treated as “portfolio income” and, therefore, U.S. Shareholders that are subject
to the passive activity loss limitations will be unable to claim passive activity losses against such income.
Sale of Shares.
When a U.S. Shareholder
sells or otherwise disposes of our shares, the shareholder will recognize capital gain or capital loss for federal income tax
purposes in an amount equal to the difference between (a) the amount of cash and the fair market value of any property received
on the sale or other disposition, and (b) the shareholder’s adjusted tax basis in the shares for tax purposes. The gain
or loss will be long-term gain or loss if the U.S. Shareholder has held the shares for more than one year. Long-term capital gain
of a non-corporate U.S. Shareholder is generally taxed at preferential rates. In general, any loss recognized by a U.S. Shareholder
on a disposition of shares that the shareholder has held for six months or less, after applying certain holding period rules,
will be treated as a long-term capital loss, to the extent the shareholder received distributions from us that were treated as
long-term capital gains. Capital losses generally are deductible only to the extent of a U.S. Shareholder’s capital gain.
Backup Withholding.
We will report
to our U.S. Shareholders and the IRS the amount of dividends paid during each calendar year and the amount of tax withheld, if
any, with respect thereto. A U.S. Shareholder may be subject to backup withholding tax with respect to dividends paid unless the
shareholder (i) is a corporation or comes within certain other exempt categories and, if required, demonstrates this fact, or
(ii) provides a taxpayer identification number and certifies as to no loss of exemption, and otherwise complies with the applicable
requirements of the backup withholding rules. An individual U.S. Shareholder may satisfy these requirements by providing us with
a properly completed and signed IRS Form W-9. Individual U.S. Shareholders who do not provide us with their correct taxpayer identification
numbers may be subject to penalties imposed by the IRS. Any amount withheld will be creditable against the U.S. Shareholder’s
income tax liability.
Taxation of the UPREIT Reorganization
General
. Upon completion of the
UPREIT Reorganization, substantially all of the Company's investments will be held through the Operating Partnership. In general,
partnerships are “pass-through” entities which are not subject to federal income tax. Rather, partners are allocated
their proportionate shares of the items of income, gain, loss, deduction and credit of a partnership, and are potentially subject
to tax thereon, without regard to whether the partners receive a distribution from the partnership. The Company will include in
its income its proportionate share of the foregoing Operating Partnership items for purposes of the various REIT income tests
and in the computation of its REIT taxable income. Moreover, for purposes of the REIT asset tests, the Company will include its
proportionate share of assets held by the Operating Partnership.
Tax Allocations
. After conversion
to an UPREIT structure, new partners may be admitted upon the acquisition of additional properties. In such event, pursuant to
Section 704(c) of the Code, income, gain, loss and deduction attributable to appreciated or depreciated property (such as the
Company's properties) that is contributed to a partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from, respectively, the unrealized gain or unrealized
loss associated with the property at the time of the contribution. The amount of such unrealized gain or unrealized loss is generally
equal to the difference between the fair market value of contributed property at the time of contribution, and the adjusted tax
basis of such property at the time of contribution (a “Book-Tax Difference”). Such allocations are solely for federal
income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners. The
Operating Partnership is expected to be formed by way of contributions of appreciated property. Consequently, the Operating Partnership
Agreement will require such allocations to be made in a manner consistent with Section 704(c) of the Code.
In general, partners who contribute partnership
interests in properties in exchange for interests in the Operating Partnership (the “Contributing Partners”) will
be allocated lower amounts of depreciation deductions for tax purposes than such deductions would be if determined on a pro rata
basis. In addition, in the event of the disposition of any of the contributed assets (including the Company's properties) which
have a Book-Tax Difference, all taxable income attributable to such Book-Tax Difference generally will be allocated to the Contributing
Partners, and the Company generally will be allocated only its share of capital gains attributable to appreciation, if any, occurring
after the closing of the acquisition of such properties. This will tend to eliminate the Book-Tax Difference over the life of
the Operating Partnership. However, the special allocation rules of Section 704(c) of the Code do not always entirely eliminate
the Book-Tax Difference on an annual basis or with respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed assets in the hands of the Operating Partnership will cause the Company to be allocated lower depreciation
and other deductions, and possibly amounts of taxable income in the event of a sale of such contributed assets in excess of the
economic or book income allocated to it as a result of such sale. This may cause the Company to recognize taxable income in excess
of cash proceeds, which might adversely affect the Company's ability to comply with the REIT distribution requirements.
Treasury Regulations under Section 704(c)
of the Code provide partnerships with a choice of several methods of accounting for Book-Tax Differences, including the “traditional
method,” which may leave some of the Book-Tax Differences unaccounted for, or the election of certain alternate methods,
which would permit any distortions caused by a Book-Tax Difference at this time to be entirely rectified on an annual basis or
with respect to a specific taxable transaction such as a sale. The Company may use the “traditional method” for accounting
for Book-Tax Differences with respect to its properties to be contributed to the Operating Partnership. In such event, distributions
to shareholders will be comprised of a greater portion of taxable income rather than a return of capital. The Company has not
determined which of the alternative methods of accounting for Book-Tax Differences will be elected with respect to its properties
to be contributed to the Operating Partnership in the future.
With respect to any property purchased
by the Operating Partnership, such property initially will have a tax basis equal to its fair market value and Section 704(c)
of the Code will not apply.
Basis in Operating Partnership Interest
.
The Company's adjusted tax basis in its interest in the Operating Partnership generally (i) will be equal to the amount of cash
and the basis of any other property contributed to the Operating Partnership by the Company, (ii) will be increased by (a) its
allocable share of the Operating Partnership's income and (b) its allocable share of indebtedness of the Operating Partnership
and (iii) will be reduced, but not below zero, by the Company's allocable share of (a) losses suffered by the Operating Partnership,
(b) the amount of cash distributed to the Company and (c) constructive distributions resulting from a reduction in the Company's
share of indebtedness of the Operating Partnership.
If the allocation of the Company's distributive
share of the Operating Partnership's loss exceeds the adjusted tax basis of the Company's partnership interest in the Operating
Partnership, the recognition of such excess loss will be deferred until such time and to the extent that the Company has an adjusted
tax basis in its partnership interest. To the extent that the Operating Partnership's distributions, or any decrease in the Company's
share of the indebtedness of the Operating Partnership (such decreases being considered a cash distribution to the partners),
exceed the Company's adjusted tax basis, such excess distributions (including such constructive distributions) will constitute
taxable income to the Company. Such taxable income normally will be characterized as a capital gain. Under current law, capital
gains and ordinary income of corporations are generally taxed at the same marginal rates.
Sale of the Properties
. The Company's
share of gain realized by the Operating Partnership on the sale of any property held by the Operating Partnership as inventory
or other property held primarily for sale to customers in the ordinary course of the Operating Partnership's trade or business
will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. Such prohibited transaction income
may also have an adverse effect upon the Company's ability to satisfy the income tests for qualification as a REIT. Under existing
law, whether property is held as inventory or primarily for sale to customers in the ordinary course of the Operating Partnership's
trade or business is a question of fact that depends on all the facts and circumstances with respect to the particular transaction.
It is the Company's present intent that the Operating Partnership will hold its properties for investment with a view to long
term appreciation, to engage in the business of acquiring, developing, owning, and operating properties and to make such occasional
sales of its properties, including peripheral land, as are consistent with the Operating Partnership's investment objectives.
Other Tax Consequences
We and our shareholders may be subject
to state or local taxation in various state and local jurisdictions, including those in which we or they transact business or
reside. State and local tax laws may not conform to the federal income tax consequences discussed above. Consequently, prospective
shareholders should consult their own tax advisors regarding the effect of state and local tax laws on an investment in our shares.
EXPERTS
The consolidated balance sheets of Power
REIT and Subsidiary as of December 31, 2011 and December 31, 2010 and the related consolidated statements of operations, changes
in shareholders’ equity and cash flows for each of the years in the three year period ended December 31, 2011 appearing
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 are incorporated by reference herein in reliance
upon the report of Gibbons & Kawash A.C., an independent registered public accounting firm, and upon the authority of said
firm as experts in accounting and auditing. As of the date of this prospectus, Gibbons & Kawash, A.C. does not have any interests
that would require disclosure pursuant to Item 509 of Regulation S-K.
LEGAL MATTERS
The validity of the issuance of the securities
to be offered by this prospectus will be passed upon for us by Leech Tishman Fuscaldo & Lampl, LLC. As of the date of this
prospectus, Leech Tishman Fuscaldo & Lampl, LLC does not have any interests that would require disclosure pursuant to Item
509 of Regulation S-K.
MATERIAL CHANGES
There have been no material changes to
Power REIT’s financial condition or results of operations since the filing with the SEC on March 28, 2012 of Power REIT’s
Annual Report on Form 10-K for the year ended December 31, 2011.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference
certain documents that we file with it, which means that we can disclose important information to you by referring you to those
documents. The information in those documents is considered part of this prospectus, except for information incorporated by reference
that is superseded by information contained in this prospectus. The following documents filed with the SEC are incorporated by
reference into this prospectus:
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our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as filed with the
SEC on March 28, 2012;
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our Current Reports on Form 8-K filed with the SEC on February 16, 2012, March 9, 2012, April
13, 2012, April 20, 2012 and May 7, 2012;
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all documents filed by Power REIT pursuant to Exchange Act Sections 13(a) or 15(d) subsequent
to the date of the initial registration statement to which this prospectus relates and prior to effectiveness of the registration
statement; and
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all documents filed by Power REIT pursuant to Exchange Act Sections 13(a), 13(c), 14 or 15(d)
subsequent to the date of this prospectus and prior to the termination of offerings pursuant to this prospectus.
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We will provide to each person, including
any beneficial owner, to whom this prospectus or a related prospectus supplement is delivered, at no cost to the requester, a
copy of any or all of the information we have incorporated by reference but not delivered with the prospectus or prospectus supplement,
including any exhibits that are specifically incorporated by reference in that information. To receive any such copies, please
write us at Power REIT, 55 Edison Avenue, West Babylon, NY 11704 or call us at (212) 750-0373. The documents may also be accessed
through our website at
http://www.pwreit.com
. Other than the information specifically incorporated by reference above,
the information on, or otherwise accessible through, our website does not constitute a part of this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration
statement under the Securities Act with respect to the securities offered by this prospectus. This prospectus does not contain
all of the information set forth in the registration statement, its exhibits and the exhibits incorporated by reference therein.
For further information with respect to us and our securities, please review the registration statement, its exhibits and the
exhibits incorporated by reference therein. Statements contained in this prospectus regarding the contents of any contract or
other document are not necessarily complete and, in each instance, we refer you to the copy of the contract or document filed
as an exhibit to the registration statement or incorporated by reference therein. Each of these statements is qualified in its
entirety by this reference.
We file annual, quarterly and current reports,
proxy statements and other information with the SEC. These SEC filings, as well as the registration statement referred to above
and the exhibits to each of the foregoing documents, are available to the public at the SEC’s website at
http://www.sec.gov
.
You may also read and copy any document or exhibit we file with the SEC at the SEC’s Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0030 for additional information concerning the operation of the
Public Reference Room.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the
foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
Up to $5,400,000
Common Shares
________________________
PROSPECTUS SUPPLEMENT
________________________
March 28, 2013
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