SOUTHWEST IDEAS CONFERENCE DAVID SCHULTE, PRESIDENT AND CEO

Transcription

1 SOUTHWEST IDEAS CONFERENCE DAVID SCHULTE, PRESIDENT AND CEO NOVEMBER 16, 2016 CORR LISTED NYSE Southwest IDEAS Conference NYSE: CORR 1

2 Disclaimer This presentation contains certain statements that may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of All statements, other than statements of historical fact, included herein are "forward-looking statements." Although CorEnergy believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in CorEnergy s reports that are filed with the Securities and Exchange Commission. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Other than as required by law, CorEnergy does not assume a duty to update any forwardlooking statement. In particular, any distribution paid in the future to our stockholders will depend on the actual performance of CorEnergy, its costs of leverage and other operating expenses and will be subject to the approval of CorEnergy s Board of Directors and compliance with leverage covenants. Southwest IDEAS Conference NYSE: CORR 2

3 Infrastructure Asset Class has Desirable Investment Characteristics Infrastructure REIT Strategy Overview Infrastructure assets are essential for our customers operations to produce revenue CorEnergy s triple-net leases and other contracts generate operating expense for our tenants Total long-term return of 8-10% on assets from base rents, plus acquisitions and participating rents Growing CorEnergy through disciplined acquisitions that are accretive to AFFO and dividends per share Asset Fundamentals Long-lived, critical assets to tenant operations High barriers to entry with strategic locations Contracts provide predictable revenue Limited sensitivity to price/volume changes Investment Characteristics High cash flow component to total return Attractive potential risk-adjusted returns Diversification vs. other asset classes Potential inflation protection Southwest IDEAS Conference NYSE: CORR 3

4 Energy Infrastructure is Utility-Like Southwest IDEAS Conference NYSE: CORR 4

5 Investor-Friendly Access to Infrastructure Utility & REIT markets are larger and more institutional than MLP MLPs Utilities REITs CorEnergy Market Cap: ~$450bn (1)(2) Market Cap: ~$730bn (3)(4) Market Cap: ~$800bn (3)(4) Market Cap: ~$350mm (4) Retail & Insider Institutional REIT structure provides more attractive access to energy infrastructure than MLP structure 1099 infrastructure access for institutional, tax exempt and non-us investors (no k-1, UBTI or ECI) REITs are not investment companies, but are eligible to be owned by investment companies 1) The Research Magazine Guide to Master Limited Partnerships 2015, July ) MLPA Master Limited Partnerships 101, June ) REIT.com GICS Classification of Real Estate, September 2016, includes only equity REITs 4) Bloomberg Data Southwest IDEAS Conference NYSE: CORR 5

6 Portland Terminal: MLP as Tenant 39-acre terminal to receive, store and deliver heavy and refined petroleum products 84 tanks with 1.5 million barrels of storage capacity; loading for ships, rail and trucks Triple-net operating lease with Arc Terminals; 15-year initial term, 5-year renewals Acquired for $40 million and financed $10 million in expansion projects Southwest IDEAS Conference NYSE: CORR 6

7 MoGas Interstate Pipeline: LDCs as Customers 263-mile pipeline connecting natural gas supplies to Missouri utilities Critical pipeline with 97% of revenues from firm transportation contracts Held as taxable company; subject to intercompany mortgage $125 million financed through issuance of new equity and preferred ettis nton kory Saline Chariton Dallas Cooper Morgan Howard Moniteau Camden Randolph Laclede Miller Boone Ralls Monroe PEPL Connect Audrain REX Connect Cole Pulaski Texas Curryville Compressor Callaway Osage Maries Phelps Montgomery Gasconade Dent Warren Crawford Missouri Illinois Pike Lincoln Franklin Pike Reynolds Calhoun Saint Charles Washington Iron _1.wor (NY00813G) Scott Greene Jersey Saint Louis Jefferson Saint Francois Madison Saint Louis City Macoupin MRT Connect Monroe Madison Saint Clair Sainte Genevieve Randolph Perry BollingerCape Girardeau Bond Clinton Jackson Christian Montgomery Washington Perry Union Southwest IDEAS Conference NYSE: CORR 7

8 CorEnergy Strategy Withstanding Energy Market Volatility Since the beginning of 2015, over 105 North American energy companies have filed for bankruptcy, accounting for ~$68 billion of secured and unsecured debt 1 In April, the parent companies of two CorEnergy tenants, Energy XXI Ltd and Ultra Petroleum Corp, filed Chapter 11 GIGS tenant (EXXI subsidiary) remains outside of bankruptcy proceedings Pinedale LGS tenant (UPL subsidiary) is included in Chapter 11 reorganization, UPL has agreed to assume CORR s lease CORR s business strategy of contracting critical energy infrastructure assets under long-term triple-net leases has endured two bankruptcies (1) Haynes and Boone, LLP, Oil Patch Bankruptcy Monitor, October 19, 2016 Southwest IDEAS Conference NYSE: CORR 8

9 Our Leases Preserve Terminal Value Renewal Expectation CorEnergy contracts are based on fair value of assets All leases enable tenant to either purchase asset or renew lease at fair market value If parties cannot agree on value, an arbitrator will decide Asset value is based on production estimates in tenant reserve report and market values for similar assets (such as MLPs) Same at initial purchase and renewal process CorEnergy can assert damages claims against actions that devalue an asset including the purchase or construction of replacement systems Southwest IDEAS Conference NYSE: CORR 9

10 Conservative Capital Structure Conservative capital structure limits risk of high fixed costs, such as interest and preferred dividend payments Ratio of Earnings to Fixed Charges: 2.9x Ratio of Earnings to Fixed Charges and Preferred Dividends: 2.3x CorEnergy is compliant with all secured and unsecured debt covenants Capitalization ($ in millions) September 30, 2016 Secured Credit Facilities $91.7 Convertible Debt, proceeds gross of fees $114.0 Total Debt $205.7 Preferred Stock $56.3 Common Stock $351.8 Total Equity $408.0 Total Capitalization $613.7 Financing Ratios Well Below Targets Total Debt to Total Capitalization Ratio: Adjusted ratio of 33.5%, within our target range of 25-50% Preferred to Total Equity Ratio: Adjusted ratio of 13.8%, below our 33% target Southwest IDEAS Conference NYSE: CORR 10

11 Durable Revenues + Low Leverage = Dividend Stability Lease payments produce predictable cash flows Assets are critical to tenant revenue production Lease expense is an operating cost (not a financing cost) Lease payments are made during bankruptcy Results in utility-like consistency of revenue for CORR Conservative leverage profile & multiple capital sources We believe the $3.00 annualized dividend is a sustainable payout, pending outcomes of the bankruptcy process Dividends are based solely on minimum rents CorEnergy retains debt repayment and reinvestment capital prior to dividend payment Upside from portfolio growth and participating rents Energy REIT provided a new business model in 2012: Investor friendly access to infrastructure assets Southwest IDEAS Conference NYSE: CORR 11

12 Looking Forward to 2017 Today Key bankruptcy milestones near achievement Our team is active analyzing potential transactions Financing Options $63.4 million of available liquidity (1) Bank Debt Convertible Debt Preferred Equity Common Equity Co-Investor 2017 One to Two Acquisitions Size Range of $ Million (1) As of September 30, 2016 Southwest IDEAS Conference NYSE: CORR 12

13 APPENDIX Southwest IDEAS Conference NYSE: CORR 13

14 Management Expertise in Energy & Finance Dave Schulte Co-Founder, CEO & President Oversees CorEnergy team, investment decisions and corporate financing Rick Green Co-Founder & Executive Chairman Oversees CorEnergy team, Board of Directors and investments decisions; manages operating partners relationships Becky Sandring Senior Vice President, Secretary & Treasurer Specializes in implementation of complex accounting policies for asset acquisitions Rick Kreul President, MoWood, LLC Oversees CorEnergy assets; performs due diligence for acquisitions Jeff Fulmer Senior Vice President Generates transactions through operator outreach; performs due diligence on assets Nate Poundstone Chief Accounting Officer Streamlines and enhances accounting and disclosure practices Jeff Teeven Vice President of Finance Develops efficient capital structure; manages banking and investor relationships Wesley Brown Senior Manager, Business Development Performs due diligence, financial modeling and forecasting for potential acquisitions Southwest IDEAS Conference NYSE: CORR 14

15 Pinedale LGS Case Study $228 million asset, acquired with Prudential as a co-investor 150 miles of pipeline, 107 receipt points, 4 above-ground facilities Critical to operation of Ultra Petroleum s Pinedale natural gas field 15-year triple-net lease; rent $20 million per year + participating features Pinedale Liquids Gathering System Southwest IDEAS Conference NYSE: CORR 15

16 Total Well Cost ($MM) Cash Costs Per Mcfe Pinedale LGS Supports Large Reserves & Low-Cost Operator Pinedale LGS supports $9.5 billion, or ~93% of UPL reserves Lease expense is relatively small UPL is a low cost operator with significant presence in a low cost field UPL Reserve Values as of 9/30/2016 (in millions) Reserve Category Total Reserves Reserves Served by Pinedale LGS Proved 1 $7,951 2 $7,394 Probable & Possible 3 $2,235 2 $2,079 Total 3P Reserves $10,186 $9,473 UPL Continues to Drive Down Well Costs 4 Production Costs at Pinedale are Low vs. National Average 4 CORR Lease Payment = $0.07/Mcfe 1 (1) UPL 3Q16 10-Q Filing, (2) CorEnergy Estimate, (3) Stifel Estimates, includes PUDs Reclassified by UPL, due to SEC rules related to capital constraints, (4) Declarations of Garland R. Shaw in Support of Chapter 11 Petitions and First Day Motions Southwest IDEAS Conference NYSE: CORR 16

17 Expected Next Steps for UPL Bankruptcy UPL is here Disclosure Statement Approved 1 Court Confirms Plan Traditional Chapter 11 Case Timeline Company files for Chapter 11 Dec. 1: Submission of Business Plan Creditors Approve Plan Exit Bankruptcy Expected: 2017 Deadline for Company s exclusivity period for Plan approval is March 1, 2017 Hearing on Motion to Assume Pinedale LGS Lease: November 28, 2016 (1) Includes proposed Plan of Reorganization Source: Ultra Petroleum Bankruptcy Court Filings Southwest IDEAS Conference NYSE: CORR 17

18 Grand Isle Gathering System Case Study ~$250 million critical midstream infrastructure in the Gulf of Mexico 153 miles of undersea pipeline and terminal with separation, SWD and storage facilities Essential system to transport crude oil and produced water for large proven reserves Triple-net operating lease with Energy XXI subsidiary average minimum rent of ~$40 million Southwest IDEAS Conference NYSE: CORR 18

19 GIGS Supports Large Reserves & Low-Cost Operator The GIGS supports $1.3 billion, or ~40% of EXXI reserves Lease expense is relatively small EXXI dedicated to further cost reduction EXXI Unlevered Cash Expenses Per BOE 4 Lease Operating Expense, Gathering & Transportation, Production Tax $19.41 CORR Lease Expense Field Level Cash Expense $21.01 General and Administrative 5.35 Total Cash Expenses $26.36 EXXI Reserve Values as of 9/14/16 (in millions) Reserve Category Total Reserves 1 Reserves Served by GIGS 2 Proved 3 $1,114 $446 Probable $1,195 $478 Possible $1,003 $401 Total 3P Reserves $3,312 $1,325 (1) EXXI 8-K filed 10/31/16, (2) CorEnergy Estimate, (3) Includes PUDs Reclassified by EXXI, due to SEC rules related to capital constraints, 4) EXXI K Southwest IDEAS Conference NYSE: CORR 19

20 Expected Next Steps for EXXI Bankruptcy Company files for Chapter 11 Disclosure Statement Approved 1 Creditors Approve Plan Deadline for Company s exclusivity period for Plan approval is November 15, 2016 Court Confirms Plan Traditional Chapter 11 Case Timeline Negotiate Plan with Lenders EXXI is here Nov. 14: Confirmation Hearing Begins Exit Bankruptcy Expected: Fourth Quarter 2016 (1) Includes proposed Plan of Reorganization Source: Energy XXI Bankruptcy Court Filings Southwest IDEAS Conference NYSE: CORR 20

21 Corporate Structure Alignment with Investors Grand Isle Gathering System MoGas Pipeline SWD Facilities Assets Pinedale LGS Portland Terminal Omega Pipeline Corporate Structure Management Agreement CORR Expense Metrics vs. Peer Group 1 Fees Base Fee Incentive Fee Administration Fee Management Fee Services provided: Presents the Company with suitable acquisition opportunities, responsible for the day-to-day operations of the Company and performs such services and activities relating to the assets and operations of the Company as may be appropriate Base Fees paid: Quarterly management fee equal to 0.25 percent (1.00 percent annualized) of the value of the Company s Managed Assets 3 as of the end of each quarter Incentive Fees paid: External Fee Structure Quarterly incentive fee of 10 percent of the increase in distributions earned over a threshold distribution equal to $0.625 per share per quarter. The Management Agreement also requires at least half of any incentive fees to be reinvested in the Company s common stock Administrative Fee Services provided: Fees paid: Performs (or oversees or arranges for the performance of) the administrative services necessary for our operation, including without limitation providing us with equipment, clerical, bookkeeping and record keeping services 0.04 percent of our aggregate average daily Managed Assets, with a minimum annual fee of $30 thousand (1) Peer group consists of REITs included in the RMZ index under $1BN market cap (2) Gross Asset Value = Asset Value of Investment Properties + Accumulated Depreciation (3) Managed Assets is defined as Total Assets of CORR minus the initial invested value of non-controlling interests, the value of any hedged derivative assets, any prepaid expenses, all of the accrued liabilities other than deferred taxes and debt entered into for the purposed of leverage Southwest IDEAS Conference NYSE: CORR 21

22 Non-GAAP Financial Metrics: FFO/AFFO Reconciliation September 30, 2016 September 30, 2015 September 30, 2016 September 30, 2015 Net Income attributable to CorEnergy Stockholders $ 9,231,185 $ 427,219 $ 21,576,833 $ 8,698,985 Less: Preferred Dividend Requirements 1,037,109 1,037,109 3,111,327 2,811,718 Net Income (loss) attributable to Common Stockholders 8,194,076 (609,890) 18,465,506 5,887,267 Add: Depreciation 5,537,179 5,644,320 16,166,599 13,158,454 Less: Non-Controlling Interest attributable to NAREIT FFO reconciling items 411, ,455 1,234,364 1,234,365 NAREIT funds from operations (NAREIT FFO) 13,319,800 4,622,975 33,397,741 17,811,356 Add: Distributions received from investment securities 278, , , ,056 Income tax expense (benefit) from investment securities 645,083 (450,699) 703,211 50,398 Less: NAREIT FFO, FFO Adjusted for Securities Investment and AFFO Reconciliation For the Three Months Ended For the Nine Months Ended Net distributions and dividend income 277, , ,265 1,025,381 Net realized and unrealized gain (loss) on other equity securities 1,430,858 (1,408,751) 1,001,771 (915,568) Funds from operations adjusted for securities investments (FFO) 12,535,284 5,614,014 32,985,571 18,493,997 Southwest IDEAS Conference NYSE: CORR 22

23 Add: Non-GAAP Financial Metrics: FFO/AFFO Reconciliation September 30, 2016 September 30, 2015 September 30, 2016 September 30, 2015 Provision for loan losses, net of tax 6,667,823 4,409,359 6,667,823 Transaction costs 33, ,009 71, ,307 Amortization of debt issuance costs 469, ,386 1,556,607 1,313,026 Amortization of deferred lease costs 22,983 22,824 68,949 53,508 Accretion of asset retirement obligation 184, , , ,521 Income tax benefit (161,931) (114,940) (459,640) (344,535) Amortization of above market leases 72,987 Unrealized gain associated with derivative instruments (60,513) (13,965) (2,818) (48,494) Less: NAREIT FFO, FFO Adjusted for Securities Investment and AFFO Reconciliation For the Three Months Ended For the Nine Months Ended EIP Lease Adjustment (1) 542,809 Non-Controlling Interest attributable to AFFO reconciling items (10,715) 23,837 35,153 69,348 Adjusted funds from operations (AFFO) $ 13,033,630 $ 13,153,835 $ 39,137,335 $ 26,645,983 Weighted Average Shares of Common Stock Outstanding: Basic 11,872,729 11,924,148 11,909,431 10,266,380 Diluted (2) 15,327,274 15,408,998 15,379,792 11,466,292 NAREIT FFO attributable to Common Stockholders Basic $ 1.12 $ 0.39 $ 2.80 $ 1.73 Diluted (2) $ 1.01 $ 0.39 $ 2.60 $ 1.73 FFO attributable to Common Stockholders Basic $ 1.06 $ 0.47 $ 2.77 $ 1.80 Diluted (2) $ 0.96 $ 0.47 $ 2.57 $ 1.79 AFFO attributable to Common Stockholders Basic $ 1.10 $ 1.10 $ 3.29 $ 2.60 Diluted $ 0.98 $ 0.98 $ 2.94 $ 2.50 (1) Based on the economic return to CorEnergy resulting from the sale of our 40 percent undivided interest in the Eastern Interconnect Project (EIP), we determined that it was appropriate to eliminate the portion of EIP lease income attributable to return of capital, as a means to more accurately reflect the EIP lease revenue contribution to CorEnergy-sustainable AFFO. CorEnergy believes that the portion of the EIP lease revenue attributable to return of capital, unless adjusted, overstates CorEnergy's distribution-paying capabilities and is not representative of sustainable EIP income over the life of the lease. The Company completed the sale of EIP on April 1, (2) The number of weighted average diluted shares represents the total diluted shares for periods when the Convertible Notes were dilutive in the per share amounts presented. For periods presented without per share dilution, the number of weighted average diluted shares for the period is equal to the number of weighted average basic shares presented. Source: CorEnergy Form 10-Q Report for the quarter ended September 30, For additional information, please refer to our Form 10-K and Form 10-Q reports filed with the SEC. Southwest IDEAS Conference NYSE: CORR 23

24 Non-GAAP Financial Metrics: Fixed-Charges Ratio Ratio of Earnings to Combine Fixed Charges and Preferred Stock For the Nine Months Ended September 30, For the Years Ended December 31, For the Years Ended November 30, One-Month Transition Period Ended December 31, Earnings: Pre-tax income from continuing operations before adjustment for income or loss from equity investees $ 22,349,641 $ 11,782,422 $ 6,973,693 $ 2,967,257 $ 19,857,050 $ (515,658) Fixed charges (1) $ 10,987,677 $ 9,781,184 $ 3,675,122 $ 3,288,378 $ 81,123 $ 416,137 Amortization of capitalized interest $ $ $ $ $ $ Distributed income of equity investees $ 867,265 $ 1,270,754 $ 1,836,783 $ 584,814 $ (279,395) $ 2,325 Pre-tax losses of equity investees for which charges arising from guarantees are included in fixed charges $ $ $ $ $ $ Subtract: Interest capitalized $ $ $ $ $ $ Preference security dividend requirements of consolidated subsidiaries $ $ $ $ $ $ Noncontrolling interest in pre-tax income of subsidiaries that have not incurred fixed charges $ $ $ $ $ $ Earnings 34,204,583 22,834,360 12,485,598 6,840,449 19,658,778 (97,196) Combined Fixed Charges and Preference Dividends: Fixed charges (1) $ 10,987,677 $ 9,781,184 $ 3,675,122 $ 3,288,378 $ 81,123 $ 416,137 Preferred security dividend (2) 3,111,327 3,848,828 Combined fixed charges and preference dividends 14,099,004 13,630,012 3,675,122 3,288,378 81, ,137 Ratio of earnings to fixed charges (0.23) Ratio of earnings to combined fixed charges and preference dividends (0.23) Combined Fixed Charges Deficiency (513,333) (1) Fixed charges consist of interest expense, as defined under U.S. generally accepted accounting principles, on all indebtedness (2) This line represents the amount of preferred stock dividends accumulated as of June 30, Southwest IDEAS Conference NYSE: CORR 24

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