Power REIT (PW) Should do a Tender Offer for their Preferreds
A frustrated shareholder base would likely tender their shares well below par, creating value for everyone.
This company presents an interesting set up where it appears there is substantial value to unlock, the ability to effect change via activism of some sort, and a frustrated shareholder base that is likely open to change.
It is also small enough (market cap around $3 million) where even a small fund would be able to effect change.
Company history
The company began as Pittsburgh & West Virginia Railroad in 1967 and did a reverse merger with the newly-formed Power REIT in 2011. Filings for the P&WV can be found going back to 1997 and it is just a boring REIT with no debt and limited expenses that pays all earnings out to shareholders. Here is an excerpt from a 2012 14a proposal that sums up the history:
The core of the Trust is the 99-year lease (renewable) at $915,000 per year, without escalations, that Pittsburgh & West Virginia Railroad has with Norfolk Southern. For almost 45 years, that rental income was efficiently converted into dividend income under the leadership of the Jones family and the other trustees.
The Jones family is now gone from the Board of Trustees – Herbert Jones, Jr. passed in July 2010 and his son, Herbert, Jones, III, resigned from the Board in February 2011. David Lesser is Chairman since Dec 2010 and Chief Executive Officer since Feb 14, 2011.
Now, the new Board of Trustees, headed by David Lesser, is about to embark, according to the Trust’s Registration Statement on Form S-3, on what the Dorsey Nominees consider to be a potentially disastrous course for the Trust’s non-management shareholders.
A complete destruction of value at the hands of David Lesser
With the exception of a pop during the manic Covid times when everyone was senselessly bullish on cannabis and crypto, there has been a complete erosion of value here at the hands of David Lesser.
The last paragraph of that excerpt above proved to be prophetic as the S-3 filed detailing their plans in the early 2010’s did turn out to destroy lots of value for shareholders.
David Lesser, solar and cannabis
On 5/14/2009, David Lesser was elected as a trustee, which was the beginning of the end. Herbert Jones Jr. passed away on 7/8/2010, with his son replacing him shortly thereafter. On 9/29/2010, Patrick Haynes III is appointed as a trustee and in the 8-K it mentions that Haynes, Lesser and Wenger (incumbent trustee) represent a majority. On 11/30/2010, Jones III resigns as chairman and Lesser replaces him, and then on 2/3/11 Jones III resigns from all positions with the company and Lesser is appointed CEO on 2/14/11.
The company then does a rights offering to raise money, hires one of Lesser’s affiliates in a consulting role, and his plan is to grow the company to diversify away from their railroad, which lacked income growth. This is all detailed in their proxy statement.
They then put in a poison pill limiting any person from acquiring more than 9.9% of the company unless there is an exception made by the trustees. There are several other moves made to entrench themselves and I’ll get into that later when discussing my thoughts on how to effect change.
Then in late 2011 P&WV and the newly formed Power REIT merge and reincorporate in Maryland and they begin buying solar land leased to energy suppliers until 2019. Obviously, from simply looking at the share price during this time, there was a lot of value destroyed.
Around 2019 they pivot to buying greenhouses leased to cannabis operators. The terms of the leases were very good for the company, however it proved disastrous aside from a short-term spike during Covid likely based on the general euphoria of the market at that time.
Essentially, all of the operators (at least one of which was a publicly traded company headed by Lesser called Millenium Sustainable Ventures Corp - that is another story!) defaulted and their properties are now fully vacant. They had a large non-recourse loan hanging over their heads for a while but this has been settled as of April 2025 by doing deeds-in-lieu on 2 properties with the remaining collateralized properties being retained by the company.
So, now the dust is settled on that and we have a clear picture as to their tangible assets and liabilities.
What does Power REIT own and what is their NAV?
Power REIT owns:
P&WV Railroad – this is the original asset the company was built on. They receive $915,000 NNN annually and it is leased to Norfolk Southern (investment grade) on a 99-year lease expiring in 2063 with unlimited renewals at the same lease rate. I value this at a 6-cap using napkin math. I think the best comp is the 30-year government bond and this is about 1 point above that. I struggle to see it trading much higher or lower than this, although the fact that there is zero rent escalation means the real purchasing power on this one goes down every year.
PWRS solar land in CA – 447 acres of solar land leased to an operator in Kern County, CA (near Tejon Ranch). Currently, the rent is $803,117 NNN annually with 1% annual escalations until 2034, and then the tenant has three 5-year renewal options after this. And during the renewal period the rent is calculated as “the greater of a minimum stated rental amount or a percentage of the total project-level gross revenue.” So, this sounds like a base rent plus percentage rent structure. I’m valuing this at a 6 cap, although a case can likely be made to go lower (meaning a higher price) given the demand for solar energy and energy in general. This is an 82 MW solar farm which is apparently a decent amount, and with the development around that area and Kern county being business-friendly, this is good.
3 loans receivable for about $1.65 million – these are 3 loans tied to seller financing the company made when selling 3 of their greenhouse properties. They are current, performing, and most of the funds have maturities approaching (~$960k matures 1/6/27, ~$600k matures 10/30/25 and ~$105k matures 6/9/2030), so I am valuing these at face.
13 greenhouse properties totaling ~366k sf – these are either all in default or vacant as they went bananas buying and building these properties at silly prices during the cannabis craze during 2021. A few they’ve already sold. I have not dug into these much, but I’m valuing these at $10/sf which I am assuming is very cheap. There appears to be one listed on Loopnet for over $30/sf so I would imagine $10/sf is conservative. A smaller one that doesn’t appear to be as appealing as the rest sold for $13.32/sf on 6/9/25, so this validates that $10/sf is likely conservative. Here are what these look like:
$1,481,349 cash as of 6/30/25 – valued at face.
On the liabilities side, here is what it looks like:
P&WV loan – non-recourse loan at 4.62% fixed and doesn’t mature until 2054. Balance is $14,143,000 as of 3/31/25. If this loan is assumable then that is a big asset and could drive up the value. I’m assuming it isn’t, but that would be a good surprise to find out it was.
PWRS loan – this is likely non-recourse as well although I am not certain of that. Rate is 4.34% fixed and doesn’t mature until 2034. Balance as of 3/31/25 is $6,472,000. Again, if this is assumable then that enhances the value of the asset.
Series A preferred 7.75% - these have a $25 face and the company stopped paying the dividend on them recently. 6 quarters of non-payment triggers something where holders can elect 2 additional trustees by plurality of votes. 10% of holders need to call a special meeting, which is a low bar. They are currently in arrearages 11 quarters and this is where the value play is, in my opinion.
When we net this out, assuming the preferreds are worth face ($25), that gives us a NAV of $1.93/share for the common. If the company can buy back a meaningful portion of the preferreds around the current price they are trading for in the high $3’s, then the NAV is much higher. Using an average price paid for the preferreds of $7 gives us a NAV/share for the common of $3.81.
Originally, this was the angle I was taking until I dug into the preferreds. They currently owe $5.32/share in accrued dividends to the pref holders, which is above what these are trading for. Clearly, the market has written off any chance of these being worth anything in the future.
The preferred angle
Based on their preferred bylaws, 10% of the preferred holders can call a special meeting to elect 2 additional directors. My opinion is that it will be much easier for Lesser to work with the preferred holders to initiate some kind of tender offer at a price below par. And it is likely that many of these frustrated holders tender their shares given the disastrous track record of current management, even if it is below par.
This would help the common holders as well because they would get a lot of the preferreds out of the way, which must be current on their dividend payments before common dividends can be initiated. And if they are able to do it at a discount to par (plus accrued dividends) which is around $31, this is a major win for the company and would create value.
My hope and prayer is that David Lesser seriously considers something like this, which would be beneficial to everyone here, in my opinion. I spoke with him on 8/1/25 and he was adamant that a liquidation is not something they are looking to do. This is the next best thing and Lesser should strongly consider this.
Important: This information is for general purposes only and is not financial advice. Always seek professional guidance for investment decisions.