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Heads: Win Big; Tails: Lose Nothing



November 27, 2012 – Comments (1) | RELATED TICKERS: PW

Hi everyone.  I hope that you all had a great Thanksgiving holiday.  I know that I personally have a lot to be thankful for...a wonderful family, a great job, a great place to live, good health.  With so much negativity out there in the news today it pays to take a second to count one's blessings.  I try to do so as often as possible.  It's actually been scientifically proven to change the brain for the better.  Try googling it some time.  Amazing stuff.

Anyhow, onto the subject of investing.  I just came across a very compelling article about a tiny stock that I have written about before, Power REIT (PW).  The company is currently involved in a lawsuit with the sole tennant that enables it to pay its 5% dividend.  The author of this Forbes article claims that this tiny company has a number of potential positive outcomes as a result of this lawsuit and really no downside should it lose:

Potential moneys that the lessees might be ordered to pay are

• $0.23 per share or more in legal fees.  I think this is very likely.

• $15,517,325 or $9.58 a share for the value of the settlement account.  I think there is a decent chance that the court will order NSC to pay this one way or another, although it might not come as a lump sum.

• Interest on the above amount.   If the court does award interest, it would come to about $55 million ($34 per PW share) of compound interest on top of the $15.5 million principal if they use the long term AFR.

• Increased rent under a renegotiated lease, which could be many times the current lease payment.  The current lease pays $915,000, or $0.56 per PW share per year.

The downside for Power REIT would simply be that the court orders that the status quo be maintained (in which case they could still order the lessees to reimburse Power REIT’s legal fees.)  In this case, the legal spending will stop, investors will have greater certainty and still own a REIT yielding over 5% which has plans to expand its asset base into renewable energy real estate.  As I have previously written, that expansion is likely to allow PW to increase its per share dividend.

I remember looking into PW's management and not being all that enamored with them.  However, if what most of what the autohor of this article says is true (and I have not independently verified this yet) this stock has some serious upside and very little downside.

Interesting stuff.  Thanks for reading and have a fantastic evening!

Norfolk Southern v. Power REIT: Heads: Win Big; Tails: Lose Nothing


1 Comments – Post Your Own

#1) On November 28, 2012 at 6:22 PM, awallejr (35.47) wrote:

This did catch my eye but then I saw this on Yahoo message board:

 You hit the problem right on the nose. Unfortunately management has done something. That something is to increase G&A tenfold with no increase in revenues and that's why the dividend has been reduced as you mentioned. And more recently, while the company continues to only be the P&W railroad property with a fixed rent payment, the new management has decided to reward themselves with a massive equity grant that dilutes all shareholders. That's why the stock has been tanking while all other REITs have been increased in value tremendously. Spreading out the same revenue base and a decreased profit base (due to the G&A increase) over a much larger share pool due to the equity grants undoubtebly leads to a falling stock price that we suffer from now.

To add insult to injury, if you dig deep in the financial filings (the few that there are for these clowns) into the source of the increase in G&A cost, most of it is related to legal expenses to a law firm where the new CEO's immediate family member is a partner. Lovely world we live in where these types of corporate of somehow legal.

Why a lease was entered into with no inflation clause is a red flag to begin with.  And yup dividends have been slowly decreasing.  I wouldn't touch this if they actually did lose.  The future hope would be a renegotiation of the lease with inflation protection.  In the end investing in this stock is basically invesating in a lawsuit.

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