Power REIT

Item 1A. Risk Factors.

The Trusts results of operations and financial condition are subject to numerous risks and uncertainties as described in the 2023 10-K, which risk factors are incorporated herein by reference. The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item 1A, Risk Factors, contained in the 2023 10-K. You should carefully consider the risks set forth in the 2023 10-K and the following risks, together with all the other information in this Report, including our consolidated financial statements and notes thereto. If any of the risks actually materialize, our operating results, financial condition and liquidity could be materially adversely affected. Except as disclosed below, there have been no material changes from the risk factors disclosed in the 2023 10-K.

We have identified material weaknesses in our internal controls, and we cannot provide assurances that these material weaknesses will be effectively remediated or that additional weaknesses will not occur in the future.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a- 15(f) under the Exchange Act. We identified a material weakness in our controls relating to accounting for complex transactions. Specifically, Preferred Shares were historically classified as mezzanine equity instead of being classified as equity.

While we have hired outside consultants to aid in our accounting for complex transactions and plan to take remedial action to address the material weakness in our internal controls, we cannot provide any assurance that such remedial measures, or any other remedial measures we take, will be effective. In addition, a material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are designed and operate effectively. Although management believes that the material weakness in our internal controls will be remediated, there can be no assurance that the deficiencies will be remediated in the near future or that the internal control over financial reporting, as modified, will enable us to identify or avoid material weaknesses in our internal controls in the future.

As a result of our failure to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, security holders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, is designed to prevent fraud. Our failure to maintain an effective system of internal controls, and any failure by us to implement required new or improved internal controls or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any testing by us, as and when required, conducted in connection with Section 404 of the Sarbanes-Oxley Act, or Section 404, or any subsequent testing by our independent registered public accounting firm, as and when required, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. As a growing company, implementing and maintaining effective controls may require more resources, and we may encounter internal control integration difficulties. Our failure to maintain effective internal controls over financial reporting, may result in us not being able to accurately report our financial results, detect or prevent fraud, or file our periodic reports in a timely manner, which may, among other adverse consequences, cause investors to lose confidence in our reported financial information and lead to a decline in the trading price of our common stock.

The investment portfolio is, and in the future may continue to be, concentrated in its exposure to a relatively few numbers of investments, industries and lessees.

Historically, the Trusts revenue has been concentrated to a relatively limited number of investments, industries and lessees. During the sixnine months ended JuneSeptember 30, 2024, Power REIT collected approximately 902% of its consolidated revenue from two properties. The tenants awere Norfolk Southern Railway and Regulus Solar, LLC which represent 489% and 423% of consolidated revenue, respectively. The concentration percentages do not include the income from the recognition of security deposits related to defaulted leases. As we see additional properties, our revenue may be concentrated in a smaller number of investments.

We are exposed to risks inherent in this sort of investment concentration. Financial difficulty or poor business performance on the part of any single lessee or a default on any single lease will expose us to a greater risk of loss than would be the case if we were more diversified and holding numerous investments, and the underperformance or non-performance of any of its assets may severely adversely affect our financial condition and results from operations. Our lessees could seek the protection of bankruptcy, insolvency or similar laws, which could result in the rejection and termination of our lease agreements and could cause a reduction in our cash flows. Furthermore, we may continue to concentrate our investment activities in the CEA and cannabis sectors, which subjects us to more risks than if we were diversified across many sectors. At times, the performance of the infrastructure sector may lag the performance of other sectors or the broader market as a whole.

If our acquisitions or our overall business performance fail to meet expectations, the amount of cash available to us to pay dividends may decrease and we could default on our loans, which are secured by collateral in our properties and assets.

We may not be able to achieve operating results that will allow us to pay dividends at a specific level or to increase the amount of these dividends from time to time. Also, restrictions and provisions in any credit facilities we enter into or any debt securities we issue may limit our ability to pay dividends. We cannot assure you that you will receive dividends at a particular time, or at a particular level, or at all.

Unfortunately, our tenants related to the greenhouse portfolio have failed to perform on their lease obligations which has created a significant liquidity issue related to this portfolio of assets. Power REIT entered into a Greenhouse Loan with initial availability of $20 million that is non-recourse to Power REIT and has liens against the Power REIT greenhouse portfolio of properties. The balance of the loan as of JuneSeptember 30, 2024, is approximately $15,7006,267,000 and is in default. In March 2024, the lender filed a litigation seeking among other things, foreclosure and appointment of a receiver. Unfortunately, this may lead to distressed sales which would have a negative impact on our prospects. If we should fail to generate sufficient revenue to pay our outstanding secured debt obligations, the lenders may foreclose on the security pledged decreasing our ability to generate revenue and our ability to pay dividends. In addition, Maryland law prohibits the payment of dividends if we are unable to pay our debts as they come due. A forbearance agreement with the lender for the Greenhouse Loan was effective on May 10, 2024, which provides additional time to retire the loan. The original expiration date of the forbearance agreement iwas September 30, 2024. On September 30, 2024, the we entered into an amendment to the forbearance agreement which moves the expiration of the forbearance agreement to January 31, 2025. There can be n Trust is in discussions with the lender to continue a process of orderly sales of assets to try and maximize value but there can be no assurance that our ee bank will extend the forbearance again if the loan is not retired in a timely fashion. There can be no assurance that the efforts to sell, re-lease or recapitalize the assets which are security for the Greenhouse Loan will ultimately retire the loan per the requirements of the forbearance agreement.

PW Regulus Solar, LLC (PWRS), one of our subsidiaries, entered into the 2015 PWRS Loan Agreement (as defined below) that is non-recourse to Power REIT and secured by all of PWRS interest in the land and intangibles. As of JuneSeptember 30, 2024, the balance of the 2015 PWRS Loan was approximately $6,783506,000 (net of unamortized debt costs of approximately $22419,000).

Pittsburgh West Virginia Railroad (PWV), one of our subsidiaries, entered into a Loan Agreement in the amount of $15,500,000 that is non-recourse to Power REIT and secured by our equity interest in our subsidiary PWV which is pledged as collateral. The balance of the loan as of JuneSeptember 30, 2024 is $14,306253,000 (net of approximately $27269,000 of capitalized debt costs).

We have substantial debt and preferred shares outstanding with substantial liquidation preference, which could adversely affect our overall financial health and our operating flexibility.

We may need to raise additional capital or sell additional properties to fund our operations in order to continue as a going concern.

As of JuneSeptember 30, 2024, we had an accumulated deficit of $47.36.5 million and a net loss attributable to common shareholders of $21.52 million. As of December 31, 2023, we had an accumulated deficit of $25.80 million and a net loss attributable to common shareholders of $15 million. As of JuneSeptember 30, 2024, the Trust had approximately $2.94 million of cash and approximately $16.47.0 million of current loan liabilities. The current loan liabilities include approximately $15.76.3 million of a bank loan secured by the majority of the greenhouse portfolio (the Greenhouse Loan) and which is non-recourse to the Trust.

Of the total amount of cash, approximately $2.52 million is non-restricted cash available for general corporate purposes and $480163,000 is restricted cash related to the Greenhouse Loan.

For the sixnine months ended JuneSeptember 30, 2024 and the year ended December 31, 2023, the Trust determined that there was substantial doubt as to its ability to continue as a going concern as a result of net losses incurred, expected reduced revenue and increased property maintenance expenses related to the greenhouse portfolio.

While the current liabilities far exceed the current assets, if the Trusts plan to focus on selling properties, entering into new leases, improving cash collections from existing tenants and the raising capital in the form of debt or equity is effectively implemented, the Trusts plan could potentially provide enough liquidity to fund its operations. However, the Trust cannot predict, with certainty, the outcome of its actions to generate liquidity, including its ability to sell properties, and the failure to do so could negatively impact its future operations.

In early 2024, the Trust sold three properties which should help with liquidity. The net proceeds from the sale of the Salisbury, MA property was approximately $662,000 of unrestricted cash and the approximately $456,000 loan was retired at closing and is eliminated from current liabilities. The other sale produced approximately $53,000 of restricted cash and will generate cash flow from seller financing provided that should help with liquidity to service the Greenhouse Loan.

The Greenhouse Loan is in default and we continue to work with the bank to establish a path forward. However, the Greenhouse Loan is non-recourse to Power REIT which means that in the event it cannot resolve issues with the bank and they foreclose on the properties, Power REIT should be able to continue as a going concern albeit with a significantly smaller portfolio of assets. In March 2024, the lender filed a litigation seeking among other things, foreclosure and appointment of a receiver (See Note 6 LONG-TERM DEBT). A forbearance agreement with the lender for the Greenhouse Loan was entered into effective May 10, 2024, which provides additional time to retire the loan. The expiration date of the original forbearance agreement iwas September 30, 2024. On September 30, 2024, we entered into an amendment to the forbearance agreement which moves the expiration of the forbearance agreement to January 31, 2025. We are in discussions with the lender to continue a process of orderly sales of assets to try and maximize value but there can be no assurance the bank will extend the forbearance again if the loan is not retired in a timely fashion. There can be no assurance that our efforts to sell, re-lease or recapitalize the assets which are security for the Greenhouse Loan will ultimately retire the loan per the requirements of the forbearance agreement.

The issuance of securities with claims that are senior to those of our common shares, including our Series A Preferred Stock, may limit or prevent us from paying dividends on its common shares. There is no limitation on our ability to issue securities senior to the Trusts common shares or incur indebtedness.

Our common shares are equity interests that rank junior to our indebtedness and other non-equity claims with respect to assets available to satisfy claims against us, and junior to our preferred securities that by their terms rank senior to our common shares in our capital structure, including our Series A Preferred Stock. As of JuneSeptember 30, 2024, we had outstanding debt in the principal amount of $37.40 million and $9.68.5 million (par value) of Series A Preferred Stock. This debt and these preferred securities rank senior to the Trusts common shares in our capital structure. We expect that in due course we may incur more debt, and issue additional preferred securities as we pursue our business strategy.

In the case of indebtedness, specified amounts of principal and interest are customarily payable on specified due dates. In the case of preferred securities, such as our Series A Preferred Stock, holders are provided with a senior claim to distributions, according to the specific terms of the securities. In contrast, however, in the case of common shares, dividends are payable only when, as and if declared by the Trusts board of trustees and depend on, among other things, the Trusts results of operations, financial condition, debt service requirements, obligations to pay distributions to holders of preferred securities, such as the Series A Preferred Stock, other cash needs and any other factors that the board of trustees may deem relevant or that they are required to consider as a matter of law. The incurrence by the Trust of additional debt, and the issuance by the Trust of additional preferred securities, may limit or eliminate the amounts available to the Trust to pay dividends on our Series A Preferred Stock and common shares.

From time to time, our management team may own interests in our lessees or other counterparties, and may thereby have interests that conflict or appear to conflict with the Trusts interests.

On occasion, our management may have financial interests that conflict, or appear to conflict with the Trusts interests. For example, four of Power REITs properties were leased by tenants in which Millennium Sustainable Ventures Corp., formerly Millennium Investment Acquisition Company (ticker: MILC) had controlling interests. David H. Lesser, Power REITs Chairman and CEO, is also Chairman and CEO of MILC. MILC established cannabis cultivation projects in Colorado (through a loan), Oklahoma, and Michigan which are related to our May 21, 2021, June 11, 2021, and September 3, 2021 acquisitions and a food crop cultivation project in Nebraska related to our March 31, 2022 acquisition. Total rental income recognized for the sixnine months ended JuneSeptember 30, 2024 from the affiliated tenants in Colorado, Oklahoma, Mi and Nebraska was $0. Total rental income recognized for the three and nine months ended September 30, 2024 was $785,000 and $785,000, respectively, from the tenant affiliated with MILC in Michigan and Nebraska was $0based on the recognition of a security deposit as income during the third quarter of 2024. Total rental income recognized for the three and nine months ended September 30, 2023 is $0 from the tenants that are affiliated with MILC in Michigan. The above leases are currently in default and the Trust is evaluating the best path forward related thereto. Also, a portion of the property improvement budget contained in a lease amendment with NorthEast Kind Assets, LLC for the property located in Maine, amounting to $2,205,000, was to be supplied by IntelliGen Power Systems LLC which is owned by HBP, an affiliate of David Lesser, Power REITs Chairman and CEO. On January 23, 2023, the lease was amended to restructure the timing of rent payments and eliminate the funding of remaining capital improvements for the cogeneration project, which includes eliminating payments that were expected to be paid to IntelliGen, a related party. As of JuneSeptember 30, 2024, $1,102,500 had been paid to IntelliGen for equipment supplied.

Although our Declaration of Trust permits this type of business relationship and a majority of our disinterested trustees must approve, and in those instances did approve, Power REITs involvement in such transactions, in any such circumstance, there may be conflicts of interest between Power REIT on one hand, and subsidiaries of MILC, IntelliGen, Mr. Lesser and his affiliates and interests on the other hand, and such conflicts may be unfavorable to us.