Legal Battles Won’t Derail Power REIT
Power REIT (PW) is a hot topic of conversation among many pundits and analysts these days.
And for good reason.
The company has a unique business model, and it’s currently embroiled in a tricky legal battle. However, what most investors don’t realize is that PW stands to benefit, regardless of the case’s outcome. And that makes it an interesting speculative play, as well as an income investment.
Let me explain – first, by giving you some background on Power REIT…
Power REIT is a real estate investment trust. That means it acquires real estate assets and then collects rent that its lessees generate from those assets. The REIT, in turn, distributes 90% of its income to shareholders through dividends.
Now, since the 1960s, Power REIT generated its revenue from 112 miles of rail known as the Pittsburgh and West Virginia Railroad (P&WV).
But that all changed two years ago, when David Lesser was elected Chairman and CEO of P&WV.
Lesser is a former Merrill Lynch investment banker, with years of experience in both real estate and renewable energy.
And one of his first moves was to orchestrate a reverse triangular merger – transforming P&WV to Power REIT. Lesser then set his sights on expansion, acquiring real estate with a core focus in renewable energy assets – like solar and wind farms.
By turning PW into primarily a renewable energy REIT, the company became the first of its kind.
And so far, the company has had a pretty impressive track record of success. For instance, one of its holdings, Salisbury Solar, is one of the largest solar farms in New England. It stretches across 54 acres, generating about 6,700,000 kilowatt hours (kWh) of electricity a year, enough to power 1,000 homes.
Assets like these add more cash flow and value for PW shareholders. And there are plenty more in the pipeline, which suggests the stock’s 4.37% yield will increase.
Of course, this part of PW’s business is currently being overshadowed by the company’s contentious legal battle.
Ties That Bind
Remember the Pittsburgh and West Virginia Railroad I mentioned earlier?
Now, Norfolk and Wheeling are suing Power REIT, and Power REIT is countersuing, claiming that the lessees have broken the lease on numerous counts.
PW is claiming that the lessees:
- Failed to pay P&WV’s legal fees, which the company says they were required to do after 60 days’ notice.
- Failed to reimburse P&WV in cash for federal tax payments made under the terms of the lease.
- And failed to allow P&WV to inspect books and records regarding its property, or inspect its track.
But here’s the thing: PW stands to gain, regardless of whether or not these charges stick.
Obviously, if PW wins, the money it’s awarded could be used to acquire more renewable energy projects.
And if it loses?
Norfolk Southern has been paying the rent for the railroad lines with debt since the lease was agreed to decades ago. That debt now totals about $16.6 million. So even if Power REIT loses the case on all counts, it could write-off the debt – permitting PW to characterize dividends to shareholders as non-taxable capital gains for many years to come.
If you’re still skeptical, consider this: CEO Lesser, who is already PW’s largest shareholder with about 10% of the company, is buying up shares. Lesser says he has and will continue to be a buyer of PW stock because it’s “unique and very compelling” and “one of the most exciting opportunities he could imagine.”
All his purchases are publicly filed with the SEC, including several in just the past few weeks…
- On May 31, Lesser bought 4,410 shares for $41,762.
- He acquired 1,400 shares on June 5 at a cost of $11,494.
- And on June 12, he bought 750 shares $6,802.
Lesser wouldn’t comment in depth about litigation, but these share purchases suggest he’s pretty confident about his chances.
And legal battles aside, Power REIT offers a compelling combination of income and growth. So it’s worth some consideration.
And “the chase” continues,