**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF1934

 

For the Quarterly period ended September30, 2011

 

1-5447

(Commission File Number)

 

**PITTSBURGH &WEST VIRGINIA RAILROAD**

(Exact name of registrant asspecified in its charter)

** **

| **Pennsylvania**                          | **25-6002536**                        |
|-------------------------------------------|---------------------------------------|
| (State of Organization)                   | (I.R.S. Employer Identification  No.) |
|                                      |                                  |
| **55 Edison Avenue, West Babylon, NY**    | **11704**                             |
| (Address of principal executive  offices) | (Zip Code)                            |

 

 

**(212) 750-0373**

(Registrant’s telephone number)

 

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes__X__            No _____

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Largeaccelerated filer         _____                   Accelerated filer                                   _____Non-accelerated filer           _____                   Smaller reportingcompany               __X__

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

 

Yes_____             No __X__

 

 

Indicatethe number of shares outstanding of each of the issuer's classes of commonstock, as of the latest practicable date.

 

1,623,250shares of beneficial interest, without par value, outstanding at September 30,2011.

 

 

 

 

**PARTI.  FINANCIAL INFORMATION**

 

Item1.  Financial Statements

 

 

| **STATEMENT OF INCOME**

**(Dollars in Thousands except  Per Share Amounts)**

**(Unaudited)**

** ** |
|------------------------------------------------------------------------------------------------------------|
|                                                                                                       | **Three Months Ended**

**September 30,** | **Nine Months Ended**

**September 30,** |
|                                                                                                       | 2011 | 2010 | 2011 | 2010 |
| **INCOME  AVAILABLE FOR DISTRIBUTION**                                                                     |   |   |   |   |
| Interest  Income from capital lease                                                                        |        $  229 |        $  229 |       $  686 |          $  686 |
| General  & Administrative Expense                                                                 |              55 |              27 |           217 |             136 |
| **NET  INCOME**                                                                                            | **           174** | **          202** | **          469** | **            550** |
|                                                                                                       |   |   |   |   |
| **Fully  Diluted, Per Share:**                                                                             |   |   |   |   |
|             Net  Income                             |          $  .11 |         $  .13 |         $  .29 |          $  . 36 |
|             Cash  Dividends                         |          $  .10 |         $  .13 |         $  .30 |          $  . 37 |
|                                                                                                       |   |   |   |   |
| **Weighted  Average Number of Shares Outstanding**                                                         | 1,623,250 | 1,510,000 | 1,592,137 | 1,510,000 |
|                                                                                                            |  |  |  |  |  |

 

Amountsmay not add due to rounding. The accompanying notes are an integral part ofthese financial statements.

 

| **BALANCE SHEET**

**(Dollars in Thousands)**

** **                                                                                                                                |                                                                                                                                                                                      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                               | **(Unaudited)**

**September 30,**

**2011**                                                                                                                                              | **(Audited)**

**December 31,**

**2010** |
| **ASSETS**                                                                                                                                                                               |                                                                                                                                                                                      |   |
| Cash                                                                                                                                                                                     |                        $    979                                   |                          $    49 |
| Prepaid  Expense                                                                                                                                                                         |                                 13       |                                    - |
| Net  investment in capital lease                                                                                                                                                         |                           9,150                                        |                           9,150 |
| **TOTAL  ASSETS**                                                                                                                                                                        | **                    $10,142**                                                            | **                      $  9,199** |
|                                                                                                                                                                                     |                                                                                                                                                                                      |   |
| **LIABILITIES  AND SHAREHOLDERS' EQUITY**                                                                                                                                                |                                                                                                                                                                                      |   |
| Accounts  Payable                                                                                                                                                                        |                            $      - |                            $      - |
| Shareholders'  equity:

Shares  of beneficial interest, at no par value (1,623,250 and 

1,510,000  shares issued and outstanding as of 9/30/2011 and 

12/31/2010,  respectively)  |                        10,095                                               |                          9,145 |
| Retained  Earnings                                                                                                                                                                       |                                47   |                                54 |
| Total  shareholders' equity                                                                                                                                                              |                        10,142                                               |                          9,199 |
| **TOTAL  LIABILITIES AND**

**SHAREHOLDERS'  EQUITY**                                                                                                                                    | **                       10,142**                                           | **                         9,199** |
|                                                                                                                                                                                     |                                                                                                                                                                                      |   |
| **SHARES  OF BENEFICIAL INTEREST**                                                                                                                                                       |                                                                                                                                                                                      |   |
| Par  Value                                                                                                                                                                               |                           $      0       |                           $      0 |
| Common  shares issued                                                                                                                                                                    |                  1,623,250                                                                                |                  1,510,000 |
| Common  shares outstanding                                                                                                                                                               |                  1,623,250                                                                                |                  1,510,000 |
|                                                                                                                                                                                          |                                                                                                                                                                                           |  |  |

 

Amountsmay not add due to rounding. The accompanying notes are an integral part ofthese financial statements.

 

| **STATEMENT OF CASH FLOWS**

**(Dollars in Thousands)**

**(Unaudited)**

** **            |
|-------------------------------------------------------------------------------------------------|
|                                                                                            | **Nine Months Ended**

**September 30,** |
|                                                                                            | **2011** | **2010** |
| **CASH  FLOW FROM OPERATING ACTIVITIES:**                                                       |   |   |
|             Net  Income                  |               $   469 |              $  550 |
|             Change  in Prepaid Expenses  |                     (13 ) |                        - |
| **NET  CASH PROVIDED BY OPERATING ACTIVITIES**                                                  | **               $  456** | **             $  550** |
|                                                                                            |   |   |
| **CASH  FLOW FROM FINANCING ACTIVITIES:**                                                       |   |   |
|             Dividends  Paid              |                  (476 ) |                (559 ) |
|             Net  Proceeds from Financing |                    950 |                        - |
| **NET  CASH PROVIDED BY (USED IN)**

**FINANCING  ACTIVITIES**                                  | **               $  474** | **             $(559 )** |
|                                                                                            |   |   |
| **Net  increase (decrease) in Cash**                                                            | **                   930** | **                    (9 )** |
|             Cash,  beginning of period   |                      49 |                    40 |
|             Cash,  end of period         |                $  979 |                $   31 |

 

Amountsmay not add due to rounding. The accompanying notes are an integral part ofthese financial statements.

 

**Notesto unaudited financial statements:**

 

1. GeneralInformation

Theforegoing interim financial statements are unaudited but, in the opinion ofmanagement, reflect all adjustments necessary for a fair presentation of theresults of operations for the interim periods presented. All adjustments are ofa normal recurring nature.

 

Pittsburgh& West Virginia Railroad ("Registrant" or "Trust") haselected to be treated for tax purposes as a real estate investment trust(REIT). It is the Trust's policy to distribute at least 90% of its ordinarytaxable income to its shareholders to maintain its REIT corporate status.    Furthermore,in accordance with the terms of the lease, Norfolk Southern Corporation (“NSC”)will reimburse the Trust, in the form of additional rent, for all taxes andgovernmental charges imposed upon the leased assets of the Trust except fortaxes relating to base cash rent payments made by the NSC.  Due to thetreatment of the lease as a direct financing lease for GAAP purposes, the taxbasis of the leased property is higher than the GAAP basis in the leasedproperty.

 

Underthe provisions of the lease, the Trust may not issue, without the prior writtenconsent of NSC, any shares or options to purchase shares or declare anydividends on its shares of beneficial interest in an amount exceeding the valueof the assets not covered by the lease plus the annual cash rent of $915,000 tobe received under the lease, less any expenses incurred for the benefit ofshareholders.  At September 30, 2011, all net assets, other than cash, arecovered by the lease.  The Trust may not borrow any money or assume any guaranteesexcept with the prior written consent of NSC.

 

2. Summaryof Significant Accounting Policies

Underthe terms of the lease, NSC has leased all of Pittsburgh & West VirginiaRailroad's real properties, including its railroad lines, for a term of 99 years,renewable by the lessee upon the same terms for additional 99-year terms inperpetuity.  The lease provides for a base cash rental of $915,000 per year forthe current lease period and all renewal periods.  The net investment incapital lease, recognizing renewal options in perpetuity, was estimated to havea current value of $9,150,000 assuming an implicit interest rate of 10%.  

 

For interim financial reporting purposes, the accounting policy has changed to record a prepaid expense for certain annual expenses and to allocate these expenses to interim periods based on the benefit received in each interim period. Previously, these amounts were expensed in the interim period in which they were paid. The effect of this change is to reduce expenses by $21,000 in the quarter ended March 31, 2011 and increase expenses by $7,000 and $7,000 in the quarters ended June 30, 2011 and September 30, 2011 respectively.

 

 

3. Equity Issuance and Reorganization

With the consent of NSC, on March 16, 2011, the Trust completed a rights offering, pursuant to which the Trust issued 113,250 common shares of beneficial interest, no par value, raising gross proceeds of $1,019,000.   During the reporting period, the Trust incurred approximately $2,000 of expenses related to a proposed corporate reorganization transaction in which the Trust will reincorporate from Pennsylvania to Maryland through a merger with “Power REIT”, a wholly-owned, subsidiary of the Trust.  After completion of the reincorporation merger, the Trust will become a wholly owned subsidiary of Power REIT.  Following the reincorporation merger, Power REIT plans to establish an umbrella partnership (“UPREIT”) through which it expects to hold the majority of its assets, including its interests in the Trust. The Trust expects the corporate reorganization will be completed in the fourth quarter and expects to incur additional legal and administrative expenses related to the corporate reorganization in the fourth quarter. 

 

Item2.  MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS

 

CAUTIONARYSTATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

ThisQuarterly Report on Form 10-Q includes forward-looking statements within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section21E of the Securities Exchange Act of 1934, as amended. Forward-lookingstatements are those that predict or describe future events or trends and thatdo not relate solely to historical matters. You can generally identifyforward-looking statements as statements containing the words"believe," "expect," "will,""anticipate," "intend," "estimate,""project," "plan," "assume" or other similarexpressions, or negatives of those expressions, although not allforward-looking statements contain these identifying words. All statementscontained in this report regarding our future strategy, future operations,projected financial position, estimated future revenues, projected costs,future prospects, the future of our industries and results that might be obtainedby pursuing management's current or future plans and objectives areforward-looking statements.

 

Youshould not place undue reliance on any forward-looking statements because thematters they describe are subject to known and unknown risks, uncertainties andother unpredictable factors, many of which are beyond our control. Ourforward-looking statements are based on the information currently available tous and speak only as of the date of the filing of this report. New risks anduncertainties arise from time to time, and it is impossible for us to predictthese matters or how they may affect us. Over time, our actual results,performance or achievements will likely differ from the anticipated results,performance or achievements that are expressed or implied by ourforward-looking statements, and such difference might be significant andmaterially adverse to our security holders.  Our forward-looking statementscontained herein speak only as of the date hereof, and we make no commitment toupdate or publicly release any revisions to forward-looking statements in orderto reflect new information or subsequent events, circumstances or changes inexpectations.

 

MANAGEMENTDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 

Allof the Trust's railroad properties are leased to Norfolk and Western RailwayCompany, now known as Norfolk Southern Corporation (“NSC”), for 99 years, withunlimited renewals on the same terms.  Cash rental is a fixed amount of$915,000 per year, with no provision for change during the term of the leaseand any renewal periods.  This cash rental is the only current source offunds.  Although the lease provides for additional rentals to be recorded,these amounts do not increase cash flow or net income as they are charged toNSC's settlement account with no requirement for payment, except at terminationor non renewal of the lease.  Due to the indeterminate settlement date, theseadditional rental amounts are not recorded for financial reporting purposes.  

 

Incomparing the third quarter of 2011 with the preceding second quarter of 2011and the third quarter of 2010, revenues totaled $229,000, $229,000, and$229,000, respectively.  Net income and income available for distribution was $174,000,$127,000 and $202,000 respectively.

 

Trust'scash outlays, other than dividend payments, are for general and administrative (G&A)expenses, which include professional fees, consultants, office rental anddirector's fees. The existing leased properties are maintained entirely atNSC's expense.

 

Due tosubstantial constraints on the Trust's income and increasing costs related tocomplying with the laws and regulations related to its public companies, the Trustis seeking to broaden its business to include new investments in transportationand energy infrastructure assets, consistent with its status as aninfrastructure focused real-estate investment trust (REIT).  The Trust raisedapproximately $1,019,000 of gross proceeds in connection with a rights offeringthat closed on March 16, 2011 and plans to use the proceeds to provide workingcapital for its business expansion.  The Trust expects that G&A expenseswill increase in 2011 as it commences activities to further its businessexpansion and position the Trust for future growth. 

 

OnAugust 31, 2011, the Trust filed a preliminary Form S-4 (the “RegistrationStatement”) with the Securities Exchange Commission (“SEC”) to effect areorganization of the Trust under “Power REIT,” a newly formed, Maryland domiciled REIT and wholly owned subsidiary of Trust.  The Board of Trusteesbelieves the reorganization is in the best interest of the Trust as it pursuesgrowth as an infrastructure REIT.  The Board of Trustees believes thereorganization should provide the Trust with greater access to the capitalmarkets, more flexibility in structuring transactions and that the "PowerREIT" name is better aligned with the Trust's current business plan.  The Trust'sreal asset infrastructure investment strategy is expected to build upon on itshistorical ownership of the Pittsburgh & West Virginia Railroad (“PWV”).

 

Summaryof Reorganization

TheTrust’s Board of Trustees and the Board of Trustees of POWER REIT have eachapproved the reincorporation of the Trust from the Commonwealth of Pennsylvania to the State of Maryland, which will be accomplished through the merger (the“Reincorporation Merger”) of Trust with POWER REIT PA, a Pennsylvania limitedliability company and wholly-owned subsidiary of Power REIT.   Upon the effectivedate of the reincorporation merger, holders of Trust common shares will receiveone newly issued common share, $0.001 par value per share, of Power REIT foreach common share of Trust that they own, without any action of shareholdersrequired, and the Trust will survive the Reincorporation Merger as awholly-owned subsidiary of Power REIT.  

 

Followingthe consummation of the Reincorporation Merger, Power REIT intends toreorganize itself into an umbrella partnership REIT structure (the “UPREITReorganization”) by contributing the equity shares of the Trustto Power REIT,LP, a to be formed Delaware limited partnership (the “Operating Partnership”). Upon the completion of the UPREIT Reorganization, Power REIT will initially ownall of the equity interests of the Operating Partnership, and the Trust willcontinue as a wholly-owned subsidiary of the Operating Partnership.     

 

TheRegistration Statement has not yet become effective and the information in the RegistrationStatement may be changed by the Trust in the future prior to its effectiveness.The Trust currently expects to complete the reorganization in the fourthquarter of 2011 following the effectiveness of its Registration Statement.  Itis possible that factors outside the control of the Trust could result in the reorganizationbeing completed at a later time, or not at all or that the Board of Trusteesmay, in their sole discretion, cancel or modify the reorganization at any timefor any reason.   

 

Therecan be no assurance that the Trust will be successful in broadening itsbusiness. See Note Regarding Forward-Looking Statements and additional riskfactors that are more fully disclosed in Trust's Form S-4 as filed with the SECon August 31, 2011.

 

Item3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As asmaller reporting company, we are not required to provide the informationrequired by this Item.

 

Item4.  CONTROLS AND PROCEDURES

 

Managementis responsible for establishing and maintaining effective disclosure controlsand procedures.  As of the end of the period covered by this report, theRegistrant carried out an evaluation under the supervision and with theparticipation of the Registrant's management, including the Chief ExecutiveOfficer and Secretary-Treasurer, of the effectiveness of the design andoperation of the disclosure controls and procedures pursuant to Rule 13a-15under the Securities and Exchange Act of 1934, as amended.  Based on thatevaluation, the Chief Executive Officer and Secretary-Treasurer have concludedthat the Registrant's disclosure controls and procedures are adequate andeffective to ensure that information required to be disclosed in theRegistrant's required SEC filings is recorded, processed, summarized andreported within the time periods specified in the Commission's rules and forms.

 

Therehave been no significant changes in the Registrant's internal controls or inother factors that that could significantly affect internal controls subsequentto the date the Registrant carried out its evaluation.

 

Wemaintain a system of internal control over financial reporting that is designedto provide reasonable assurance that our books and records accurately reflectthe transactions of the Registrant and that our policies and procedures arefollowed.  There have been no changes in our internal control over financialreporting during the period covered by this report that have materiallyaffected, or are reasonable likely to materially affect such controls.

 

 

**PARTII.  OTHER INFORMATION**

 

Item 1. Legal Proceedings

 

None

 

Item1A. Risk Factors

 

TheRegistrant's results of operations and financial condition are subject tonumerous risks and uncertainties described in our preliminary Form S-4 datedAugust 31, 2011, which risk factors are incorporated herein by reference. Youshould carefully consider these risk factors in conjunction with the otherinformation contained in this report. Should any of these risks materialize, theRegistrant's business, financial condition and future prospects could benegatively impacted. 

 

Item5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit1.1 The Trust’s Current Reports on Form 8-K filed on December 7, 2010, February15, 2011, March 11, 2011 and March 17, 2011, May 17, 2011, June 1, 2011, August31, 2011 and October 17, 2011 are incorporated by reference.  

 

Exhibit1.2 The Trust’s Current Annual Report on Form 10-K filed on March 28, 2011 isincorporated by reference.

 

Exhibit1.3 The Trust’s Form S-4 filed with the SEC on August 31, 2011 is incorporatedby reference.

 

Exhibit31.1 Section 302 Certification for David H. Lesser

 

Exhibit31.2 Section 302 Certification for Arun Mittal

 

Exhibit32 Section 906 Certification for David H. Lesser and Arun Mittal.

 

Exhibit101 The following materials from the Quarterly Report on Form 10-Q for theRegistrant, for the quarter ended September 30, 2011, formatted in XBRL(eXtensible Business Reporting Language): (i) Statement of Income, (ii) BalanceSheet, (iii) Statement of Cash Flows, and (iv) Notes to the Unaudited FinancialStatements, tagged as blocks of text.

 

 

**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 

PITTSBURGH& WEST VIRGINIA RAILROAD

 

 

/s/DavidH. Lesser

DavidH. Lesser

CEO& Chairman of the Board

 

Date: October 19, 2011

 

 

/s/ArunMittal

ArunMittal

Secretary-Treasurer

 

Date: October 19, 2011