Basis of Presentation. Our financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) of the United States.

Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.

Principles of Consolidation. The accompanying consolidated financial statements include Power REIT and its wholly-owned subsidiaries, P&WV and PWSS. All intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents. The Company considers all highly liquid investments with original maturity of three months or less to be cash equivalents. Cash equivalents consist of a money market fund reported in the balance sheet at amortized cost, which approximates fair value.

Prepaid Expenses. The Trust records a prepaid asset for prepaid expenses that are expect to provide the Trust with benefits over a period of one year or longer, and amortizes the amount over the applicable service period.

Deposits. During the first quarter of 2012, the Trust placed a $15,000 deposit to acquire a parcel of land to be developed as an energy park and a $25,000 deposit with a bank to finance acquisitions. The Trust terminated the purchase agreement to acquire the land in the fourth quarter of 2012, expensing $10,000 of the previously paid deposit in 2012 and recorded a receivable for the balance, which the Trust expects to receive back during the second quarter of 2013. During the fourth quarter of 2012, the Trust expensed the deposit related to the bank line of credit.

Other Assets. During 2012, the Trust capitalized approximately $45,000 of expenses related to its shelf registration statement on Form S-3 and $4,000 of expenses related to a bridge loan. During the first quarter of 2013, the Trust capitalized approximately $37,000 of expenses related to a prospectus supplement to its S-3 shelf registration statement (See Note 4 - Shelf Registration Statement and ATM Equity Offering). The costs related to the bridge loan will be amortized using the straight-line method over the initial term, which approximates the effective interest method. The Trust expects to amortize the capitalized expenses related to it shelf offering and ATM offering proportionately based on the amount of securities issued.

Land. Newly acquired investments in land are initially recorded at cost (including costs related to the acquisition of the land) and thereafter are carried at the lower of cost or market value. Valuations are performed or obtained by management whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairments, if any, are recorded by a charge to net income and a valuation allowance if the carrying value of the property exceeds its estimated fair value. As of the date of this report, no impairments have been recorded to investments in land.

Net Investment in Capital Lease - Railroad. P&WV's net investment in its leased railroad property, recognizing the lessee's perpetual renewal options, was estimated to have a current value of $9,150,000, assuming an implicit interest rate of 10%.

Operating Leases. Lease revenue from land that is subject to an operating lease with rent escalation provisions is recorded by the Trust on a straight-line basis when the amount of escalation in lease payments is known at the time the Trust enters into a lease agreement or known at the time the Trust assumes an existing lease agreement as part of a land acquisition (e.g. an annual fixed percentage escalation).

Fair Value. Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Trust measures its financial assets and liabilities in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

· Level 1-valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow a company to sell its ownership interest back at net asset value on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities or funds.

· Level 2-valuations for assets and liabilities traded in less active dealer or broker markets, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active. Level 2 includes U.S. Treasury, U.S. government and agency debt securities, and certain corporate obligations. Valuations are usually obtained from third party pricing services for identical or comparable assets or liabilities.

· Level 3-valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

In determining fair value, the Trust utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considering counterparty credit risk.

The carrying amounts of the Trust's financial instruments, including cash and cash equivalents, approximate fair value because of their relatively short maturity schedules. Financial assets and liabilities carried at fair value on a recurring basis were as follows:

	Level 1	Level 2	Level 3	Total
Assets
Cash Equivalents⁽¹⁾	$ 191	$ -	$ -	$ 191
Total Assets at Fair Value	$ 191	$ -	$ -	$ 191

(1) Comprises money market funds, which are included in Cash & Cash Equivalents in the accompanying balance sheet.

	Level 1	Level 2	Level 3	Total
Assets
Cash Equivalents⁽¹⁾	$ 366	$ -	$ -	$ 366
Total Assets at Fair Value	$ 366	$ -	$ -	$ 366

(1) Comprises money market funds, which are included in Cash & Cash Equivalents in the accompanying balance sheet.

For financial assets that utilize Level 1 inputs, the Trust utilizes both direct and indirect observable price quotes, including quoted market prices (Level 1 inputs).