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EX-32.1 - EXHIBIT 32.1 - CorEnergy Infrastructure Trust, Inc.corr-2017930x10qexx321sect.htm
EX-31.2 - EXHIBIT 31.2 - CorEnergy Infrastructure Trust, Inc.corr-2017930x10qexx312sect.htm
EX-31.1 - EXHIBIT 31.1 - CorEnergy Infrastructure Trust, Inc.corr-2017930x10qexx311sect.htm
EX-12.1 - EXHIBIT 12.1 - CorEnergy Infrastructure Trust, Inc.corr-2017930x10qexx121rati.htm
EX-10.1 - EXHIBIT 10.1 - CorEnergy Infrastructure Trust, Inc.corr-2017930x10qexx10210wa.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549 
___________________________________________
FORM 10-Q
 ___________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission file number: 001-33292
_________________________________________________________
corenergylogo04.jpg
CORENERGY INFRASTRUCTURE TRUST, INC.
______________________________________________________________________
(Exact name of registrant as specified in its charter)
Maryland
 
20-3431375
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
1100 Walnut, Ste. 3350
Kansas City, MO
 
64106
(Address of Principal Executive Offices)
 
(Zip Code)

(816) 875-3705
(Registrant’s telephone number, including area code)

n/a
(Former name, former address and former fiscal year, if changed since last report)
___________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
x
Non-accelerated filer
o (Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)     Yes   o   No  x
As of October 31, 2017, the registrant had 11,909,244 common shares outstanding.



CorEnergy Infrastructure Trust, Inc.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2017
TABLE OF CONTENTS
____________________________________________________________________________________________
 
 
 
 
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

This Report should be read in its entirety. No one section of the Report deals with all aspects of the subject matter. It should be read in conjunction with the consolidated financial statements, related notes, and with the Management's Discussion & Analysis ("MD&A") included within, as well as provided in the Annual Report on Form 10-K, for the year ended December 31, 2016.


2


The consolidated unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ended December 31, 2017 or for any other interim or annual period. For further information, refer to the consolidated financial statements and footnotes thereto included in the CorEnergy Infrastructure Trust, Inc. Annual Report on Form 10-K, for the year ended December 31, 2016.


3

GLOSSARY OF DEFINED TERMS
 

Certain of the defined terms used in this Report are set forth below:
Accretion Expense: the expense recognized when adjusting the present value of the GIGS ARO for the passage of time.
Administrative Agreement: the Administrative Agreement dated December 1, 2011, as amended effective August 7, 2012, between the Company and Corridor.
Arc Logistics: Arc Logistics Partners LP (NYSE: ARCX).
Arc Terminals: Arc Terminals Holdings LLC, an indirect wholly-owned operating subsidiary of Arc Logistics.
ARO: the Asset Retirement Obligation liabilities assumed with the acquisition of GIGS.
ASC: FASB Accounting Standards Codification.
ASU: Accounting Standard Update.
Bbls: standard barrel containing 42 U.S. gallons.
BB Intermediate: Black Bison Intermediate Holdings, LLC, the holding company of Black Bison Water Services.
Black Bison Loans: the financing notes between Corridor Bison and CorEnergy BBWS and BBWS.
BBWS: Black Bison Water Services, LLC, the borrower of the Black Bison financing notes, as well as all of the other collateral securing the Black Bison Loans.
Convertible Notes: the Company's 7.00% Convertible Senior Notes due 2020.
CorEnergy: CorEnergy Infrastructure Trust, Inc. (NYSE: CORR).
CorEnergy BBWS: CorEnergy BBWS, Inc., a wholly-owned taxable REIT subsidiary of CorEnergy.
CorEnergy Credit Facility: the Company's upsized $160.0 million CorEnergy Revolver and the $1.0 million MoGas Revolver with Regions Bank.
CorEnergy Revolver: the Company’s $160.0 million secured revolving line of credit facility with Regions Bank.
CorEnergy Term Loan: the Company's $45.0 million secured term loan with Regions Bank that was paid off in conjunction with the amendment and restatement of the CorEnergy Credit Facility on July 28, 2017.
Corridor: Corridor InfraTrust Management, LLC, the Company's external manager pursuant to the Management Agreement.
Corridor Bison: Corridor Bison, LLC a wholly-owned subsidiary of CorEnergy.
Corridor MoGas: Corridor MoGas, Inc., a wholly-owned taxable REIT subsidiary of CorEnergy and the holding company of MoGas, United Property Systems and CorEnergy Pipeline Company, LLC.
Corridor Private: Corridor Private Holdings, Inc., an indirect wholly-owned taxable REIT subsidiary of CorEnergy.
CPI: Consumer Price Index.
Exchange Act: the Securities Exchange Act of 1934, as amended.
EXXI: Energy XXI Ltd, the parent company (and guarantor) of our tenant on the Grand Isle Gathering System lease, emerged from a reorganization under Chapter 11 of the US Bankruptcy Code on December 30, 2016, with the succeeding company named Energy XXI Gulf Coast, Inc. Throughout this document, references to EXXI will refer to both the pre- and post- bankruptcy entities.
EXXI Tenant: Energy XXI GIGS Services, LLC, a wholly-owned operating subsidiary of EXXI that is the tenant under Grand Isle Corridor's triple-net lease of the Grand Isle Gathering System.
FASB: Financial Accounting Standards Board.
FERC: Federal Energy Regulatory Commission.
Four Wood Corridor: Four Wood Corridor, LLC, a wholly-owned subsidiary of CorEnergy.

4

GLOSSARY OF DEFINED TERMS (Continued from previous page)

Four Wood Energy: Four Wood Energy Partners LLC, a wholly-owned subsidiary of Four Wood Capital Partners LLC.
Four Wood Notes: the financing notes between Four Wood Corridor and Corridor Private and SWD.
GAAP: U.S. generally accepted accounting principles.
GIGS: the Grand Isle Gathering System, owned by Grand Isle Corridor, LP and triple-net leased to a wholly-owned subsidiary of Energy XXI Gulf Coast, Inc.
Grand Isle Corridor LP: Grand Isle Corridor, LP, an indirect wholly-owned subsidiary of the Company.
Grand Isle Gathering System: a subsea midstream pipeline gathering system located in the shallow Gulf of Mexico shelf and storage and onshore processing facilities.
Grand Isle Lease Agreement: the June 2015 agreement pursuant to which the Grand Isle Gathering System assets are triple-net leased to EXXI Tenant.
Lightfoot: collectively, Lightfoot Capital Partners LP and Lightfoot Capital Partners GP LLC.
Management Agreement: references to the Management Agreement as in effect prior to May 1, 2015 mean the Management Agreement that became effective July 1, 2013, as amended effective January 1, 2014, while references to the Management Agreement as in effect on and after May 1, 2015 mean the new Management Agreement entered into May 8, 2015, effective as of May 1, 2015, between the Company and Corridor.
MMBTu: Million British Thermal Units, a measurement of natural gas.
MoGas: MoGas Pipeline LLC, an indirect wholly-owned subsidiary of CorEnergy.
MoGas Pipeline System: an approximately 263-mile interstate natural gas pipeline system in and around St. Louis and extending into central Missouri, owned and operated by MoGas.
MoGas Revolver: a $1.0 million secured revolving line of credit facility at the MoGas subsidiary level with Regions Bank.
Mowood: Mowood, LLC, an indirect wholly-owned subsidiary of CorEnergy and the holding company of Omega Pipeline Company, LLC.
Mowood/Omega Revolver: a $1.5 million revolving line of credit facility at the Mowood subsidiary level with Regions Bank.
NAREIT: National Association of Real Estate Investment Trusts.
Omega: Omega Pipeline Company, LLC, a wholly-owned subsidiary of Mowood, LLC.
Omega Pipeline: Omega's natural gas distribution system in south central Missouri.
Pinedale Credit Facility: a $70.0 million secured term credit facility, with the Company and Prudential as current lenders, used by Pinedale Corridor, LP to finance a portion of the acquisition of the Pinedale LGS.
Pinedale LGS: the Pinedale Liquids Gathering System, a system consisting of approximately 150 miles of pipelines and four above-ground central gathering facilities located in the Pinedale Anticline in Wyoming, owned by Pinedale LP and triple-net leased to a wholly-owned subsidiary of Ultra Petroleum.
Pinedale Lease Agreement: the December 2012 agreement pursuant to which the Pinedale LGS assets are triple-net leased to a wholly owned subsidiary of Ultra Petroleum.
Pinedale LP: Pinedale Corridor, LP, an indirect subsidiary owned 81.05 percent by CorEnergy and 18.95 percent by Prudential.
Pinedale GP: the general partner of Pinedale LP and a wholly-owned subsidiary of CorEnergy.
Portland Lease Agreement: the January 2014 agreement pursuant to which the Portland Terminal Facility is triple-net leased to Arc Terminals, a wholly-owned subsidiary of Arc Logistics Partners LP.
Portland Terminal Facility: a petroleum products terminal located in Portland, Oregon.
Prudential: The Prudential Insurance Company of America.

5

GLOSSARY OF DEFINED TERMS (Continued from previous page)

QDI: qualified dividend income.
REIT: real estate investment trust.
SEC: Securities and Exchange Commission.
Series A Preferred Stock: the Company's 7.375% Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share, of which there currently are outstanding 52,000 shares represented by 5,200,000 depositary shares, each representing 1/100th of a whole share of Series A Preferred.
SWD: SWD Enterprises, LLC, a wholly-owned subsidiary of Four Wood Energy Partners, LLC.
TRS: taxable REIT subsidiary.
UPL: Ultra Petroleum Corp.
Ultra Wyoming: Ultra Wyoming LGS LLC, an indirect wholly-owned subsidiary of Ultra Petroleum.
United Property Systems: United Property Systems, LLC, an indirect wholly-owned subsidiary of CorEnergy, acquired with the MoGas transaction in November 2014.
VIE: Variable interest entity.
WTI: West Texas Intermediate, grade of crude oil used for benchmarking price.

6


CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this Quarterly Report on Form 10-Q may be deemed "forward-looking statements" within the meaning of the federal securities laws. In many cases, these forward-looking statements may be identified by the use of words such as "will," "may," "should," "could," "believes," "expects," "anticipates," "estimates," "intends," "projects," "goals," "objectives," "targets," "predicts," "plans," "seeks," or similar expressions.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained. Our actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:
the ability of our tenants and borrowers to make payments under their respective leases and mortgage loans, our reliance on certain major tenants under single tenant leases and our ability to re-lease properties;
changes in economic and business conditions in the energy infrastructure sector where our investments are concentrated, including the financial condition of our tenants or borrowers and general economic conditions in the particular sectors of the energy industry served by each of our infrastructure assets;
the inherent risks associated with owning real estate, including real estate market conditions, governing laws and regulations, including potential liabilities related to environmental matters, and the relative illiquidity of real estate investments;
risks associated with the bankruptcy or default of any of our tenants or borrowers, including the exercise of the rights and remedies of bankrupt entities;
the impact of laws and governmental regulations applicable to certain of our infrastructure assets, including additional costs imposed on our business or other adverse impacts as a result of any unfavorable changes in such laws or regulations;
the loss of any member of our management team;
our continued ability to access the debt and equity markets;
our ability to successfully implement our selective acquisition strategy;
our ability to obtain suitable tenants for our properties;
our ability to refinance amounts outstanding under our credit facilities and our convertible notes at maturity on terms favorable to us;
changes in interest rates under our current credit facilities and under any additional variable rate debt arrangements that we may enter into in the future;
our ability to comply with certain debt covenants;
dependence by us and our tenants on key customers for significant revenues, and the risk of defaults by any such tenants or customers;
the risk of adverse impacts to our results of operations if the tenant exercises its early lease termination or lease buy-out options at our Portland Terminal Facility;
our or our tenants' ability to secure adequate insurance and risk of potential uninsured losses, including from natural disasters;
the continued availability of third-party pipelines, railroads or other facilities interconnected with certain of our infrastructure assets;
risks associated with owning, operating or financing properties for which the tenants', mortgagors' or our operations may be impacted by extreme weather patterns and other natural phenomena;
our ability to sell properties at an attractive price;
market conditions and related price volatility affecting our debt and equity securities;
competitive and regulatory pressures on the revenues of our interstate natural gas transmission business;
changes in federal or state tax rules or regulations that could have adverse tax consequences;
declines in the market value of our investment securities;
our ability to maintain internal controls and processes to ensure all transactions are accounted for properly, all relevant disclosures and filings are timely made in accordance with all rules and regulations, and any potential fraud or embezzlement is thwarted or detected;

7


changes in federal income tax regulations (and applicable interpretations thereof), or in the composition or performance of our assets, that could impact our ability to continue to qualify as a real estate investment trust for federal income tax purposes; and
risks related to potential terrorist attacks, acts of cyber-terrorism, or similar disruptions that could disrupt access to our information technology systems or result in other significant damage to our business and properties, some of which may not be covered by insurance and all of which could adversely impact distributions to our stockholders.
Forward-looking statements speak only as of the date on which they are made. While we may update these statements from time to time, we are not required to do so other than pursuant to applicable laws. For a further discussion of these and other factors that could impact our future results and performance, see Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 2, 2017, and Part II, Item 1A, "Risk Factors", in this Report.

8


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
corenergylogo04.jpg
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED BALANCE SHEETS
 
September 30, 2017
 
December 31, 2016
Assets
(Unaudited)
 
 
Leased property, net of accumulated depreciation of $67,171,667 and $52,219,717
$
474,306,419

 
$
489,258,369

Property and equipment, net of accumulated depreciation of $11,803,423 and $9,292,712
113,943,021

 
116,412,806

Financing notes and related accrued interest receivable, net of reserve of $4,100,000 and $4,100,000
1,500,000

 
1,500,000

Other equity securities, at fair value
10,457,982

 
9,287,209

Cash and cash equivalents
15,533,509

 
7,895,084

Deferred rent receivable
20,260,686

 
14,876,782

Accounts and other receivables
3,853,572

 
4,538,884

Deferred costs, net of accumulated amortization of $457,277 and $2,261,151
3,657,017

 
3,132,050

Prepaid expenses and other assets
815,458

 
354,230

Deferred tax asset, net
1,892,611

 
1,758,289

Goodwill
1,718,868

 
1,718,868

Total Assets
$
647,939,143

 
$
650,732,571

Liabilities and Equity
 
 
 
Secured credit facilities, net (including $7,534,177 and $8,860,577 with related party)
$
17,534,177

 
$
89,387,985

Unsecured convertible senior notes, net of discount and debt issuance costs of $2,164,715 and $2,755,105
111,835,285

 
111,244,895

Asset retirement obligation
12,375,105

 
11,882,943

Accounts payable and other accrued liabilities
4,634,946

 
2,416,283

Management fees payable
1,761,756

 
1,735,024

Unearned revenue
543,050

 
155,961

Total Liabilities
$
148,684,319

 
$
216,823,091

Equity
 
 
 
Series A Cumulative Redeemable Preferred Stock 7.375%, $130,000,000 and $56,250,000 liquidation preference ($2,500 per share, $0.001 par value), 10,000,000 authorized; 52,000 and 22,500 issued and outstanding at September 30, 2017 and December 31, 2016, respectively
$
130,000,000

 
$
56,250,000

Capital stock, non-convertible, $0.001 par value; 11,909,244 and 11,886,216 shares issued and outstanding at September 30, 2017 and December 31, 2016 (100,000,000 shares authorized)
11,909

 
11,886

Additional paid-in capital
341,678,080

 
350,217,746

Accumulated other comprehensive loss
(2,180
)
 
(11,196
)
Total CorEnergy Equity
471,687,809

 
406,468,436

Non-controlling interest
27,567,015

 
27,441,044

Total Equity
499,254,824

 
433,909,480

Total Liabilities and Equity
$
647,939,143

 
$
650,732,571

See accompanying Notes to Consolidated Financial Statements.

9


corenergylogo04.jpg
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Revenue
 
 
 
 
 
 
 
Lease revenue
$
17,173,676


$
16,996,155

 
$
51,290,294

 
$
50,988,299

Transportation and distribution revenue
5,270,628


5,119,330

 
15,056,998

 
15,283,461

Financing revenue



 

 
162,344

Total Revenue
22,444,304


22,115,485

 
66,347,292

 
66,434,104

Expenses
 
 
 
 
 
 
 
Transportation and distribution expenses
2,384,182


1,482,161

 
5,082,732

 
4,222,792

General and administrative
2,632,546

 
3,021,869

 
8,252,125

 
9,084,961

Depreciation, amortization and ARO accretion expense
6,017,664


5,744,266

 
18,029,567

 
16,778,109

Provision for loan loss and disposition



 


5,014,466

Total Expenses
11,034,392


10,248,296

 
31,364,424


35,100,328

Operating Income
$
11,409,912


$
11,867,189

 
$
34,982,868

 
$
31,333,776

Other Income (Expense)
 
 
 
 
 
 
 
Net distributions and dividend income
$
213,040

 
$
277,523

 
$
477,942

 
$
867,265

Net realized and unrealized gain on other equity securities
1,340,197

 
1,430,858

 
1,410,623

 
1,001,771

Interest expense
(2,928,036
)
 
(3,520,856
)
 
(9,585,270
)
 
(10,987,677
)
Loss on extinguishment of debt
(234,433
)
 

 
(234,433
)
 

Total Other Expense
(1,609,232
)
 
(1,812,475
)
 
(7,931,138
)
 
(9,118,641
)
Income before income taxes
9,800,680

 
10,054,714

 
27,051,730

 
22,215,135

Taxes
 
 
 
 
 
 
 
Current tax expense (benefit)
65,131

 
95,125

 
89,022

 
(378,954
)
Deferred tax expense (benefit)
126,440

 
388,027

 
(134,322
)
 
17,418

Income tax expense (benefit), net
191,571

 
483,152

 
(45,300
)
 
(361,536
)
Net Income
9,609,109

 
9,571,562

 
27,097,030

 
22,576,671

Less: Net Income attributable to non-controlling interest
431,825

 
340,377

 
1,250,096

 
999,838

Net Income attributable to CorEnergy Stockholders
$
9,177,284

 
$
9,231,185

 
$
25,846,934

 
$
21,576,833

Preferred dividend requirements
2,396,875

 
1,037,109

 
5,557,113

 
3,111,327

Net Income attributable to Common Stockholders
$
6,780,409

 
$
8,194,076

 
$
20,289,821

 
$
18,465,506

 
 
 
 
 
 
 
 
Net Income
$
9,609,109

 
$
9,571,562

 
$
27,097,030

 
$
22,576,671

Other comprehensive income (loss):
 
 
 
 
 
 
 
Changes in fair value of qualifying hedges / AOCI attributable to CorEnergy stockholders
3,038

 
3,039

 
9,016

 
(205,032
)
Changes in fair value of qualifying hedges / AOCI attributable to non-controlling interest
710

 
710

 
2,106

 
(47,937
)
Net Change in Other Comprehensive Income (Loss)
$
3,748

 
$
3,749

 
$
11,122

 
$
(252,969
)
Total Comprehensive Income
9,612,857

 
9,575,311

 
27,108,152

 
22,323,702

Less: Comprehensive income attributable to non-controlling interest
432,535

 
341,087

 
1,252,202

 
951,901

Comprehensive Income attributable to CorEnergy Stockholders
$
9,180,322

 
$
9,234,224

 
$
25,855,950

 
$
21,371,801

Earnings Per Common Share:
 
 
 
 
 
 
 
Basic
$
0.57

 
$
0.69

 
$
1.71

 
$
1.55

Diluted
$
0.57

 
$
0.68

 
$
1.71

 
$
1.55

Weighted Average Shares of Common Stock Outstanding:
 
 
 
 
 
 
 
Basic
11,904,933

 
11,872,729

 
11,896,803

 
11,909,431

Diluted
11,904,933

 
15,327,274

 
11,896,803

 
11,909,431

Dividends declared per share
$
0.750

 
$
0.750

 
$
2.250

 
$
2.250

See accompanying Notes to Consolidated Financial Statements.

10


corenergylogo04.jpg
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENT OF EQUITY

Capital Stock

Preferred Stock

Additional
Paid-in
Capital

Accumulated Other Comprehensive Income (Loss)

Retained
Earnings

Non-Controlling
Interest

Total

Shares

Amount

Amount





Balance at December 31, 2016
11,886,216

 
$
11,886

 
$
56,250,000

 
$
350,217,746

 
$
(11,196
)
 
$

 
$
27,441,044

 
$
433,909,480

Net income

 

 

 

 

 
25,846,934

 
1,250,096

 
27,097,030

Amortization related to de-designated cash flow hedges

 

 

 

 
9,016

 

 
2,106

 
11,122

Total comprehensive income

 

 

 

 
9,016

 
25,846,934

 
1,252,202

 
27,108,152

Issuance of Series A cumulative redeemable preferred stock, 7.375% - redemption value

 

 
73,750,000

 
(2,588,469
)
 

 

 

 
71,161,531

Series A preferred stock dividends

 

 

 
(727,001
)
 

 
(5,103,858
)
 

 
(5,830,859
)
Common stock dividends

 

 

 
(6,019,191
)
 

 
(20,743,076
)
 

 
(26,762,267
)
Common stock issued under director's compensation plan
1,979

 
2

 

 
67,498

 

 

 

 
67,500

Distributions to Non-controlling interest

 

 

 

 

 

 
(1,126,231
)
 
(1,126,231
)
Reinvestment of dividends paid to common stockholders
21,049

 
21

 

 
727,497

 

 

 

 
727,518

Balance at September 30, 2017 (Unaudited)
11,909,244

 
$
11,909

 
$
130,000,000

 
$
341,678,080

 
$
(2,180
)
 
$

 
$
27,567,015

 
$
499,254,824

See accompanying Notes to Consolidated Financial Statements.


11


corenergylogo04.jpg
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Nine Months Ended

September 30, 2017

September 30, 2016
Operating Activities



Net Income
$
27,097,030


$
22,576,671

Adjustments to reconcile net income to net cash provided by operating activities:



Deferred income tax, net
(134,322
)

17,418

Depreciation, amortization and ARO accretion
19,350,053


18,334,719

Provision for loan loss


5,014,466

Loss on extinguishment of debt
234,433

 

Non-cash settlement of accounts payable
(221,609
)
 

Loss on sale of equipment
4,203



Gain on repurchase of convertible debt

 
(71,702
)
Net distributions and dividend income, including recharacterization of income
148,649


(117,004
)
Net realized and unrealized gain on other equity securities
(1,410,623
)

(1,001,771
)
Unrealized loss (gain) on derivative contract
13,154


(105,567
)
Common stock issued under directors compensation plan
67,500


60,000

Changes in assets and liabilities:



Increase in deferred rent receivable
(5,383,904
)
 
(6,564,143
)
Decrease in accounts and other receivables
685,312


1,130,115

Decrease in financing note accrued interest receivable


95,114

(Increase) decrease in prepaid expenses and other assets
(105,866
)

49,227

Increase (decrease) in management fee payable
26,732


(20,148
)
Increase in accounts payable and other accrued liabilities
2,437,100


1,913,875

Increase in unearned revenue
29,695


343,295

Net cash provided by operating activities
$
42,837,537


$
41,654,565

Investing Activities



Proceeds from assets and liabilities held for sale


644,934

Purchases of property and equipment, net
(50,924
)

(475,581
)
Proceeds from asset foreclosure and sale


223,451

Increase in financing notes receivable


(202,000
)
Return of capital on distributions received
91,201


3,393

Net cash provided by investing activities
$
40,277


$
194,197

Financing Activities



Debt financing costs
(1,342,681
)

(193,000
)
Net offering proceeds on Series A preferred stock
71,161,531



Repurchases of common stock

 
(2,041,851
)
Repurchases of convertible debt

 
(899,960
)
Dividends paid on Series A preferred stock
(5,830,859
)

(3,111,327
)
Dividends paid on common stock
(26,034,749
)

(26,311,075
)
Distributions to non-controlling interest
(1,126,231
)


Advances on revolving line of credit
10,000,000


44,000,000

Payments on revolving line of credit
(44,000,000
)


Principal payments on secured credit facilities
(38,066,400
)

(57,802,535
)
Net cash used in financing activities
$
(35,239,389
)

$
(46,359,748
)
Net Change in Cash and Cash Equivalents
$
7,638,425


$
(4,510,986
)
Cash and Cash Equivalents at beginning of period
7,895,084


14,618,740

Cash and Cash Equivalents at end of period
$
15,533,509


$
10,107,754

See accompanying Notes to Consolidated Financial Statements.
 
 
 
Supplemental information continued on next page.

12


corenergylogo04.jpg
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued from previous page)

For the Nine Months Ended

September 30, 2017

September 30, 2016
Supplemental Disclosure of Cash Flow Information



Interest paid
$
6,301,929

 
$
7,829,619

Income taxes paid (net of refunds)
197,202

 
42,200


 
 
 
Non-Cash Investing Activities
 
 
 
Change in accounts and other receivables
$

 
$
(450,000
)
Net change in Assets Held for Sale, Property and equipment, Prepaid expenses and other assets, Accounts payable and other accrued liabilities and Liabilities held for sale

 
(1,776,549
)






Non-Cash Financing Activities





Reinvestment of distributions by common stockholders in additional common shares
$
727,518

 
$
494,251

See accompanying Notes to Consolidated Financial Statements.
 
 
 

13


corenergylogo04.jpg
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2017
1. INTRODUCTION AND BASIS OF PRESENTATION
Introduction
CorEnergy Infrastructure Trust, Inc. ("CorEnergy" or "the Company"), was organized as a Maryland corporation and commenced operations on December 8, 2005. The Company's common shares are listed on the New York Stock Exchange ("NYSE") under the symbol "CORR" and the depositary shares representing its Series A Preferred Stock are listed on the NYSE under the symbol "CORR PrA".
The Company is primarily focused on acquiring and financing real estate assets within the U.S. energy infrastructure sector and concurrently entering into long-term triple-net participating leases with energy companies. The Company also may provide other types of capital, including loans secured by energy infrastructure assets. Targeted assets include pipelines, storage tanks, transmission lines, and gathering systems, among others. These sale-leaseback or real property mortgage transactions provide the energy company with a source of capital that is an alternative to other sources such as corporate borrowing, bond offerings, or equity offerings. Many of the Company's leases contain participation features in the financial performance or value of the underlying infrastructure real property asset. The triple-net lease structure requires that the tenant pay all operating expenses of the business conducted by the tenant, including real estate taxes, insurance, utilities, and expenses of maintaining the asset in good working order. CorEnergy considers its investments in these energy infrastructure assets to be a single business segment and reports them accordingly in its financial statements.
In 2013 CorEnergy qualified, and in March 2014 elected (effective as of January 1, 2013), to be treated as a REIT for federal income tax purposes. Because certain of the Company's assets may not produce REIT-qualifying income or be treated as interests in real property, those assets are held in wholly-owned Taxable REIT Subsidiaries ("TRSs") in order to limit the potential that such assets and income could prevent the Company from qualifying as a REIT. The Company's use of TRSs enables it to continue to engage in certain businesses while complying with REIT qualification requirements and also allows it to retain income generated by these businesses for reinvestment without the requirement of distributing those earnings. In the future, the Company may elect to reorganize and transfer certain assets or operations from its TRSs to the Company or other subsidiaries, including qualified REIT subsidiaries. TRSs hold the Company's securities portfolio, operating businesses and certain financing notes receivable.
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements include CorEnergy accounts and the accounts of its wholly-owned subsidiaries and have been prepared in accordance with GAAP set forth in the ASC, as published by the FASB, and with the SEC instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the Company's financial position, results of operations, and cash flows for the periods presented. There were no adjustments that, in the opinion of management, were not of a normal and recurring nature. All intercompany transactions and balances have been eliminated in consolidation, and the Company's net earnings are reduced by the portion of net earnings attributable to non-controlling interests.
Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or any other interim or annual period. These consolidated financial statements and Management's Discussion and Analysis of the Financial Condition and Results of Operations should be read in conjunction with CorEnergy's Annual Report on Form 10-K, for the year ended December 31, 2016, filed with the SEC on March 2, 2017 (the "2016 CorEnergy 10-K").
2. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers" ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard was originally effective for interim and annual periods beginning after December 15, 2016 and permits the use of either the retrospective or cumulative effect transition method. On July 9, 2015, the FASB approved a one-year deferral of the effective date making the standard effective for interim and annual periods beginning after December 15, 2017. The Company is currently planning to use the modified retrospective transition method. The Company is also currently evaluating the impact that this standard will have on its consolidated financial statements and disclosures, as well as its processes and internal controls.

14


As part of its assessment work, the Company has formed an implementation team, completed training on the new revenue recognition model and is completing a review of its contracts. Based on this review and the analysis to date, the Company does not expect that adoption of the standard will have a significant impact on its consolidated financial statements based on the nature of its contracts and the fact that a substantial portion of its revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU 2014-09.
In January 2016, the FASB issued ASU 2016-01 "Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities," which will require entities to measure their investments at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. The practicability exception will be available for equity investments that do not have readily determinable fair values. The guidance is effective for fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact of adopting the new standard but does not believe that its adoption will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 "Leases" ("ASU 2016-02"), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. At adoption, the standard will be applied using a modified retrospective approach. Management is in the process of evaluating the impact of the standard on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13 "Financial Instruments - Credit Losses" ("ASU 2016-13"), which introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The new model, referred to as the current expected credit losses ("CECL model"), will apply to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early application of the guidance will be permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management is currently evaluating the impact that adopting the new standard will have on the Company's consolidated financial statements but believes that, unless the Company acquires any additional financing receivables, the impact will not be material.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments." This new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017 and will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. Management is currently evaluating the impact of the new standard but does not expect that its adoption will have a material impact.
In January 2017, the FASB issued ASU 2017-01, "Clarifying the Definition of a Business," which clarifies the definition of "a business" to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output to be considered a business. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is allowed for transactions where the acquisition (or subsidiary deconsolidation) occurs before the effective date of the amendments and the transaction has not been previously reported in the financial statements. Management is currently evaluating the impact and timing of adopting the new standard.
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"), which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments in ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The standard is effective for annual or interim tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. Effective January 1, 2017, Management has elected to early adopt this standard in connection with its goodwill impairment testing performed subsequent to January 1, 2017. As the standard will be applied prospectively, for measurement of goodwill impairment losses when an impairment is indicated, the impact of adoption to the financial statements will depend on various factors.  However, elimination of the second step will reduce the complexity and cost of measuring any such impairment.

15


3. LEASED PROPERTIES AND LEASES
As of September 30, 2017, the Company had three significant leased properties located in Oregon, Wyoming, Louisiana, and the Gulf of Mexico, which are leased on a triple-net basis to major tenants, described in the table below. These major tenants are responsible for the payment of all taxes, maintenance, repairs, insurance, and other operating expenses relating to the leased properties. The long-term, triple-net leases generally have an initial term of 11 to 15 years with options for renewals. Lease payments are scheduled to increase at varying intervals during the initial terms of the leases. The following table summarizes the significant leased properties, major tenants and lease terms:
Summary of Leased Properties, Major Tenants and Lease Terms
Property
Grand Isle Gathering System
Pinedale LGS(1)
Portland Terminal Facility
Location
Gulf of Mexico/Louisiana
Pinedale, WY
Portland, OR
Tenant
Energy XXI GIGS Services, LLC
Ultra Wyoming LGS, LLC
Arc Terminals Holdings LLC
Asset Description
Approximately 153 miles of offshore pipeline with total capacity of 120 thousand Bbls/d, including a 16-acre onshore terminal and saltwater disposal system.
Approximately 150 miles of pipelines and four central storage facilities.
A 39-acre rail and marine facility property adjacent to the Willamette River with 84 tanks and total storage capacity of approximately 1.5 million barrels.
Date Acquired
June 2015
December 2012
January 2014
Initial Lease Term
11 years
15 years
15 years(2)
Renewal Option
Equal to the lesser of 9-years or 75 percent of the remaining useful life
5-year terms
5-year terms
Current Monthly Rent Payments
7/1/16 - 6/30/17: $2,826,250
7/1/17 - 6/30/18: $2,854,667
$1,741,933
$513,355
Initial Estimated
Useful Life
27 years
26 years
30 years
(1) Non-Controlling Interest Partner, Prudential, funded a portion of the Pinedale LGS acquisition and, as a limited partner, holds 18.95 percent of the economic interest in Pinedale LP. Pinedale GP, a wholly-owned subsidiary of the Company, holds the remaining 81.05 percent of the economic interest.
(2) The lessee of the Portland Terminal Facility has a purchase option beginning in February 2017, which it can exercise with 90-days notice, as well as lease termination options on the fifth and tenth anniversaries of the lease. If exercised, the purchase option and termination options are subject to additional payment provisions and termination fees prescribed under the lease.
The future contracted minimum rental receipts for all leases as of September 30, 2017, are as follows:
Future Minimum Lease Receipts (1)
Years Ending December 31,
Amount
2017
$
15,359,741

2018
61,409,965

2019
63,685,398

2020
70,846,857

2021
77,027,332

Thereafter
376,287,233

Total
$
664,616,526

(1) Future minimum lease receipts include base rents for the Portland Terminal Facility through its initial 15-year term.
The table below displays the Company's individually significant leases as a percentage of total leased properties and total lease revenues for the periods presented:
 
As a Percentage of (1)
 
Leased Properties
 
Lease Revenues
 
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2017
 
December 31, 2016
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Pinedale LGS
39.7
%
 
39.8
%
 
31.1
%
 
30.4
%
 
30.8
%
 
30.4
%
Grand Isle Gathering System
50.1
%
 
50.0
%
 
59.2
%
 
59.8
%
 
59.5
%
 
59.8
%
Portland Terminal Facility
10.0
%
 
9.9
%
 
9.5
%
 
9.7
%
 
9.6
%
 
9.7
%
(1) Insignificant leases are not presented; thus percentages may not sum to 100%.

16


The following table reflects the depreciation and amortization included in the accompanying Consolidated Statements of Income associated with the Company's leases and leased properties:
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Depreciation Expense
 
 
 
 
 
 
 
GIGS
$
2,438,649

 
$
2,153,928

 
$
7,315,947

 
$
6,451,578

Pinedale
2,217,360

 
2,217,360

 
6,652,080

 
6,652,080

Portland Terminal Facility
318,915

 
318,914

 
956,745

 
524,170

United Property Systems
9,059

 
8,515

 
27,178

 
23,365

Total Depreciation Expense
$
4,983,983

 
$
4,698,717

 
$
14,951,950

 
$
13,651,193

Amortization Expense - Deferred Lease Costs
 
 
 
 
 
 
 
GIGS
$
7,641

 
$
7,641

 
$
22,923

 
$
22,923

Pinedale
15,342

 
15,342

 
46,026

 
46,026

Total Amortization Expense - Deferred Lease Costs
$
22,983

 
$
22,983

 
$
68,949

 
$
68,949

ARO Accretion Expense
 
 
 
 
 
 
 
GIGS
$
170,904

 
$
184,104

 
$
492,162

 
$
542,561

Total ARO Accretion Expense
$
170,904

 
$
184,104

 
$
492,162

 
$
542,561

The following table reflects the deferred costs that are included in the accompanying Consolidated Balance Sheets associated with the Company's leased properties:
 
September 30, 2017
 
December 31, 2016
Net Deferred Lease Costs
 
 
 
GIGS
$
267,524

 
$
290,447

Pinedale
627,059

 
673,085

Total Deferred Lease Costs, net
$
894,583

 
$
963,532

Substantially all of the lease tenants' financial results are driven by exploiting naturally occurring oil and natural gas hydrocarbon deposits beneath the Earth's surface. As a result, the tenants' financial results are highly dependent on the performance of the oil and natural gas industry, which is highly competitive and subject to volatility. During the terms of the leases, management monitors the credit quality of its tenants by reviewing their published credit ratings, if available, reviewing publicly available financial statements, or reviewing financial or other operating statements, monitoring news reports regarding the tenants and their respective businesses, and monitoring the timeliness of lease payments and the performance of other financial covenants under their leases.
UPL
UPL is currently subject to the reporting requirements under the Exchange Act and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. Its SEC filings can be found at www.sec.gov. Following emergence from bankruptcy, Ultra Petroleum Corp. stock is trading on the NASDAQ under the symbol UPL. The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of UPL but has no reason to doubt the accuracy or completeness of such information. In addition, UPL has no duty, contractual or otherwise, to advise the Company of any events that might have occurred subsequent to the date of such financial statements which could affect the significance or accuracy of such information. None of the information in the public reports of UPL that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.
EXXI
EXXI is currently subject to the reporting requirements of the Exchange Act and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. Its SEC filings can be found at www.sec.gov. Its stock is currently trading on the NASDAQ under the symbol EXXI. The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of EXXI but has no reason to doubt the accuracy or completeness of such information. In addition, EXXI has no duty, contractual or otherwise, to advise the Company of any events that might have occurred subsequent to the date of such financial statements which could affect the significance or accuracy of such information. None of the information in the public reports of EXXI that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.

17


ARCX
On August 29, 2017, the parent company of our tenant at the Portland Terminal Facility, Arc Logistics, announced its definitive agreement to be acquired by Zenith Energy U.S., LP. ("Zenith"). The merger is targeted to close by February 7, 2018. In September, Arc Logistics filed a preliminary proxy pursuant to which it will ultimately solicit unit holder approval for the merger. In that preliminary proxy, Arc Logistics described a number of different actions available to it under the Portland Lease Agreement, which include (i) continuing with the current terminal lease, (ii) exercising its buy-out option on the terminal or (iii) terminating the lease at its fifth anniversary, subject to the termination provisions in the lease. The preliminary proxy states that Arc Logistics has not yet decided which of those plans of action it may select, and the Company has not received notice with respect to either a buy-out or termination option election. Additionally, it is not clear whether the proposed merger will have any impact on whether, or when, any of the options would be exercised.
ARCX is currently subject to the reporting requirements of the Exchange Act and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. The audited financial statements and unaudited financial statements of Arc Logistics can be found on the SEC's website at www.sec.gov (NYSE: ARCX). The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of ARCX but has no reason to doubt the accuracy or completeness of such information. In addition, ARCX has no duty, contractual or otherwise, to advise the Company of any events that might have occurred subsequent to the date of such financial statements which could affect the significance or accuracy of such information. None of the information in the public reports of ARCX that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.
4. FINANCING NOTES RECEIVABLE
Financing notes receivable are presented at face value plus accrued interest receivable and deferred loan origination costs, and net of related direct loan origination income. Each quarter the Company reviews its financing notes receivable to determine if the balances are realizable based on factors affecting the collectability of those balances. Factors may include credit quality, timeliness of required periodic payments, past due status, and management discussions with obligors. The Company evaluates the collectability of both interest and principal of each of its loans to determine if an allowance is needed. An allowance will be recorded when, based on current information and events, the Company determines it is probable that it will be unable to collect all amounts due according to the existing contractual terms. If the Company does determine an allowance is necessary, the amount deemed uncollectable is expensed in the period of determination. An insignificant delay or shortfall in the amount of payments does not necessarily result in the recording of an allowance. Generally, when interest and/or principal payments on a loan become past due, or if management otherwise does not expect the borrower to be able to service its debt and other obligations, the Company will place the loan on non-accrual status and will generally cease recognizing financing revenue on that loan until all principal and interest have been brought current. Interest income recognition is resumed if and when the previously reserved for financing notes become contractually current and performance has been demonstrated. Payments received subsequent to the recording of an allowance will be recorded as a reduction to principal.
Black Bison Financing Notes
On February 29, 2016, the Company foreclosed on 100 percent of the equity of BB Intermediate, the borrower of the Black Bison financing notes, as well as all of the other collateral securing the Black Bison Loans. The foreclosure was accepted in satisfaction of $2.0 million of the total outstanding loan balance. On June 16, 2016, the Company entered into an asset sale agreement with Expedition Water Solutions for the sale of specified disposal wells and related equipment as outlined in the sale agreement. Consideration received by the company included $748 thousand cash, net of fees, and the future right to royalty payments, which was recorded at its fair value of $450 thousand. The rights to future cash payments are tied to the future volumes of water disposed of in each of the wells sold. The Company did not record any financing revenue related to the Black Bison Loans for the nine months ended September 30, 2016 or any subsequent period. These notes were considered by the Company to be on non-accrual status and were reflected as such in the financial statements. For the nine months ended September 30, 2016, the Company recorded $832 thousand in provision for loan losses related to the Black Bison Loans.
Four Wood Financing Note Receivable
As a result of the decreased economic activity by SWD, the Company recorded a provision for loan loss with respect to the SWD Loans. The Consolidated Statements of Income for the nine months ended September 30, 2016 reflect a Provision for Loan Loss of $3.5 million, which includes $71 thousand of deferred origination income and $98 thousand of interest accrued under the original loan agreements. The loans were placed on non-accrual status during the first quarter of 2016.

18


5. VARIABLE INTEREST ENTITIES
The FASB issued ASU 2015-02, "Consolidations (Topic 810) - Amendments to the Consolidation Analysis" ("ASU 2015-02"), which amended previous consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and other similar entities. Under this analysis, limited partnerships and other similar entities are considered a VIE unless the limited partners hold substantive kick-out rights or participating rights. Management determined that Pinedale LP and Grand Isle Corridor LP are VIEs under the amended guidance because the limited partners of both partnerships lack both substantive kick-out rights and participating rights. As such, management evaluated the qualitative criteria under FASB ASC Topic 810 - Consolidation in conjunction with ASU 2015-02 to make a determination whether these partnerships should be consolidated on the Company's financial statements. ASC Topic 810-10 requires the primary beneficiary of a variable interest entity's activities to consolidate the VIE. The primary beneficiary is identified as the enterprise that has a) the power to direct the activities of the VIE that most significantly impact the entity's economic performance and b) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. The standard requires an ongoing analysis to determine whether the variable interest gives rise to a controlling financial interest in the VIE. Based on the general partners’ roles and rights as afforded by the partnership agreements and its exposure to losses and benefits of each of the partnerships through its significant limited partner interests, management determined that CorEnergy is the primary beneficiary of both Pinedale LP and Grand Isle Corridor LP. Based upon that evaluation, the consolidated financial statements presented include full consolidation with respect to both of the partnerships.
6. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes. Components of the Company’s deferred tax assets and liabilities as of September 30, 2017 and December 31, 2016, are as follows:
Deferred Tax Assets and Liabilities
 
September 30, 2017
 
December 31, 2016
Deferred Tax Assets:
 
 
 
Net operating loss carryforwards
$
1,735,011

 
$
1,144,818

Net unrealized loss on investment securities

 
61,430

Cost recovery of leased and fixed assets
636,614

 
739,502

Loan Loss Provision
385,180

 
608,086

Other loss carryforwards
4,404,525

 
3,187,181

Sub-total
$
7,161,330

 
$
5,741,017

Deferred Tax Liabilities:
 
 
 
Basis reduction of investment in partnerships
$
(2,191,957
)
 
$
(2,158,746
)
Net unrealized gain on investment securities
(485,610
)
 

Cost recovery of leased and fixed assets
(2,591,152
)
 
(1,823,982
)
Sub-total
$
(5,268,719
)
 
$
(3,982,728
)
Total net deferred tax asset
$
1,892,611

 
$
1,758,289

As of September 30, 2017, the total deferred tax assets and liabilities presented above relate to the Company's TRSs. The Company recognizes the tax benefits of uncertain tax positions only when the position is "more likely than not" to be sustained upon examination by the tax authorities based on the technical merits of the tax position. The Company’s policy is to record interest and penalties on uncertain tax positions as part of tax expense. Tax years subsequent to the year ended December 31, 2012 remain open to examination by federal and state tax authorities.

19


Total income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rate of 35 percent for the three and nine months ended September 30, 2017 and 2016 to income from operations and other income and expense for the periods presented, as follows:
Income Tax Expense (Benefit)
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Application of statutory income tax rate
$
3,279,099

 
$
3,400,018

 
$
9,005,926

 
$
7,425,354

State income taxes, net of federal tax expense (benefit)
8,784

 
28,642

 
(22,867
)
 
(29,384
)
Federal Tax Attributable to Income of Real Estate Investment Trust
(3,096,312
)
 
(2,945,508
)
 
(9,028,359
)
 
(7,757,506
)
Total income tax expense (benefit)
$
191,571

 
$
483,152

 
$
(45,300
)
 
$
(361,536
)
Total income taxes are computed by applying the federal statutory rate of 35 percent plus a blended state income tax rate. Corridor Public Holdings, Inc. and Corridor Private Holdings, Inc. had a blended state rate of approximately 3.78 percent for the three and nine months ended September 30, 2017 and 2.82 percent for the three and nine months ended September 30, 2016. CorEnergy BBWS, Inc. does not record a provision for state income taxes because it operates only in Wyoming, which does not have state income tax. Because Mowood Corridor, Inc. and Corridor MoGas, Inc. primarily only operate in the state of Missouri, a blended state income tax rate of 5 percent was used for the operations of both TRSs for the three and nine months ended September 30, 2017 and 2016. For the three and nine months ended September 30, 2017 and 2016, all of the income tax expense (benefit) presented above relates to the assets and activities held in the Company's TRSs. The components of income tax expense (benefit) include the following for the periods presented:
Components of Income Tax Expense (Benefit)
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Current tax expense (benefit)
 
 
 
 
 
 
 
Federal
$
58,303

 
$
88,032

 
$
79,865

 
$
(350,698
)
State (net of federal tax benefit)
6,828

 
7,093

 
9,157

 
(28,256
)
Total current tax expense (benefit)
$
65,131

 
$
95,125

 
$
89,022

 
$
(378,954
)
Deferred tax expense (benefit)
 
 
 
 
 
 

Federal
$
124,484

 
$
366,478

 
$
(102,298
)
 
$
18,546

State (net of federal tax benefit)
1,956

 
21,549

 
(32,024
)
 
(1,128
)
Total deferred tax expense (benefit)
$
126,440

 
$
388,027

 
$
(134,322
)
 
$
17,418

Total income tax expense (benefit), net
$
191,571

 
$
483,152

 
$
(45,300
)
 
$
(361,536
)
As of December 31, 2016, the TRSs had an aggregate net operating loss of $3.0 million. The net operating loss may be carried forward for 20 years. If not utilized, this net operating loss will expire as follows: $90 thousand, $804 thousand, $479 thousand and $1.7 million in the years ending December 31, 2033, 2034, 2035 and 2036 respectively. The amount of deferred tax asset for net operating losses as of September 30, 2017 includes amounts for the nine months ended September 30, 2017. The aggregate cost of securities for federal income tax purposes and securities with unrealized appreciation and depreciation, were as follows:
Aggregate Cost of Securities for Income Tax Purposes
 
September 30, 2017
 
December 31, 2016
Aggregate cost for federal income tax purposes
$
3,985,264

 
$
4,327,077

Gross unrealized appreciation
6,904,503

 
5,408,242

Gross unrealized depreciation

 

Net unrealized appreciation
$
6,904,503

 
$
5,408,242


20


7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Property and Equipment
 
September 30, 2017
 
December 31, 2016
Land
$
580,000

 
$
580,000

Natural gas pipeline
124,288,382

 
124,288,156

Vehicles and trailers
609,503

 
570,267

Office equipment and computers
268,559

 
267,095

Gross property and equipment
$
125,746,444

 
$
125,705,518

Less: accumulated depreciation
(11,803,423
)
 
(9,292,712
)
Net property and equipment
$
113,943,021

 
$
116,412,806


Depreciation expense was $840 thousand and $2.5 million for the three and nine months ended September 30, 2017, respectively, and $838 thousand and $2.5 million for the three and nine months ended September 30, 2016, respectively.
8. MANAGEMENT AGREEMENT
The Company pays its manager, Corridor, pursuant to a Management Agreement as described in the 2016 CorEnergy 10-K. Fees incurred under the Management Agreement for the three and nine months ended September 30, 2017 were $1.8 million and $5.5 million, respectively, compared to $1.9 million and $5.4 million, respectively, for the three and nine months ended September 30, 2016. Fees incurred under the Management Agreement are reported in the General and Administrative line item on the Consolidated Statements of Income.
The Company pays its administrator, Corridor, pursuant to an Administrative Agreement. Fees incurred under the Administrative Agreement for the three and nine months ended September 30, 2017 were $68 thousand and $201 thousand, respectively, compared to $67 thousand and $199 thousand, respectively, for the three and nine months ended September 30, 2016. Fees incurred under the Administrative Agreement are reported in the General and Administrative line item on the Consolidated Statements of Income.
9. FAIR VALUE
The following tables set forth the Company's assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of September 30, 2017 and December 31, 2016.
 
September 30, 2017
 
 
 
Fair Value
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Other equity securities
$
10,457,982

 
$

 
$

 
$
10,457,982

Interest Rate Swap Derivative
17,918

 

 
17,918

 

Total Assets
$
10,475,900

 
$

 
$
17,918

 
$
10,457,982

 
December 31, 2016
 
 
 
Fair Value
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Other equity securities
$
9,287,209

 
$

 
$

 
$
9,287,209

Interest Rate Swap Derivative
19,950

 

 
19,950

 

Total Assets
$
9,307,159

 
$

 
$
19,950

 
$
9,287,209

At September 30, 2017, the only assets and liabilities measured at fair value on a recurring basis were the Company's derivatives and its equity securities. On March 30, 2016, the Company terminated one of the cash flow hedges with a notional amount of $26.3 million concurrent with the assignment of the Pinedale Credit Facility. The remaining cash flow hedge was de-designated from hedge accounting as of March 30, 2016, and continues to be valued using a consistent methodology and therefore is classified as a Level 2 measurement. Subsequent to de-designation, changes in the fair value are recognized in earnings in the period in which the changes occur.

21


The valuation of the interest rate swaps are determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. The inputs used to value the derivatives fall primarily within Level 2 of the value hierarchy.
The changes for all Level 3 securities measured at fair value on a recurring basis using significant unobservable inputs for the nine months ended September 30, 2017 and 2016 are as follows:
Level 3 Rollforward
For the Nine Months Ended September 30, 2017
 
Fair Value Beginning Balance
 
Acquisitions
 
Disposals
 
Total Realized and Unrealized Gains Included in Net Income
 
Return of Capital Adjustments Impacting Cost Basis of Securities
 
Fair Value Ending Balance
 
Changes in Unrealized Gains, Included In Net Income, Relating to Securities Still Held (1)
Other equity securities
 
$
9,287,209

 
$

 
$

 
$
1,410,623

 
$
(239,850
)
 
$
10,457,982

 
$
1,410,623

Total
 
$
9,287,209

 
$

 
$

 
$
1,410,623

 
$
(239,850
)
 
$
10,457,982

 
$
1,410,623

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other equity securities
 
$
8,393,683

 
$

 
$

 
$
958,443

 
$
113,610

 
$
9,465,736

 
$
958,443

Total
 
$
8,393,683

 
$

 
$

 
$
958,443

 
$
113,610

 
$
9,465,736

 
$
958,443

(1) Located in Net realized and unrealized gain on other equity securities in the Consolidated Statements of Income
The Company utilizes the beginning of reporting period method for determining transfers between levels. There were no transfers between levels 1, 2 or 3 for the nine months ended September 30, 2017 and 2016.
Valuation Techniques and Unobservable Inputs
The Company’s other equity securities, which represent securities issued by private companies, are classified as Level 3 assets and the Company has elected to report at fair value under the fair value option. Significant judgment is required in selecting the assumptions used to determine the fair values of these investments.
As of September 30, 2017, the Company’s investment in Lightfoot is its only remaining significant private company investment. As of both September 30, 2017 and December 31, 2016, the Company held a 6.6 percent and 1.5 percent equity interest in Lightfoot Capital Partners LP and Lightfoot Capital Partners GP, respectively. Lightfoot’s assets include an ownership interest in Gulf LNG, a 1.5 billion cubic feet per day ("bcf/d") receiving, storage, and regasification terminal in Pascagoula, Mississippi, and common units and subordinated units representing an approximately 40 percent aggregate limited partner interest, and a noneconomic general partner interest, in Arc Logistics Partners LP (NYSE: ARCX). The Company holds observation rights on Lightfoot's Board of Directors.
In August 2017, ARCX and Lightfoot entered into a purchase agreement and plan of merger with Zenith, pursuant to which Zenith will acquire the limited partner units of ARCX held by Lightfoot, as well as Lightfoot’s Gulf LNG and general partner interests. Under the terms of the agreement, Lightfoot will receive $14.50 per unit of ARCX, and up to $63.6 million for its interest in Gulf LNG, subject to certain conditions being met. Additionally, Lightfoot will receive $94.5 million for its general partner interest. As of September 30, 2017, the Company’s Lightfoot investment has been valued based on expected proceeds from the proposed merger transaction, discounted using a risk-free rate from an assumed closing date. The expected proceeds utilized in the valuation were developed based on the agreed-upon consideration under the terms of the proposed merger, less estimated transaction fees and expenses. There can be no assurances that the proposed merger transaction will close based on the terms currently outlined, or at all.
As of December 31, 2016, Lightfoot was valued using a combination of the following valuation techniques: (i) public share price of private companies' investments and (ii) discounted cash flow analysis using an estimated discount rate of 15.3 percent to 17.3 percent. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investment may fluctuate from period to period. Additionally, the fair value of the Company’s investment may differ from the values that would have been used had a ready market existed for such investment and may differ materially from the values that the Company may ultimately realize.


22


Certain condensed combined unaudited financial information of the unconsolidated affiliate, Lightfoot, is presented in the following tables:
 
September 30, 2017
 
December 31, 2016
 
(Unaudited)
 
(in thousands)
Assets
 
 
 
Current assets
$
20,789

 
$
20,412

Noncurrent assets
691,340

 
698,341

Total Assets
$
712,129

 
$
718,753

Liabilities
 
 
 
Current liabilities
$
18,950

 
$
14,530

Noncurrent liabilities
275,272

 
268,805

Total Liabilities
$
294,222

 
$
283,335

 
 
 
 
Partner's equity
417,907

 
435,418

Total liabilities and partner's equity
$
712,129

 
$
718,753

 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
 
(Unaudited)
 
(in thousands)
Revenues
$
27,291

 
$
26,673

 
$
79,802

 
$
78,983

Operating expenses
24,987

 
21,287

 
70,261

 
64,171

Income from Operations
$
2,304

 
$
5,386

 
$
9,541

 
$
14,812

Other income
100

 
2,339

 
3,870

 
7,082

Net Income
$
2,404

 
$
7,725

 
$
13,411

 
$
21,894

Less: Net Income attributable to non-controlling interests
(1,236
)
 
(5,131
)
 
(6,343
)
 
(14,208
)
Net Income attributable to Partner's Capital
$
1,168

 
$
2,594

 
$
7,068

 
$
7,686

The following section describes the valuation methodologies used by the Company for estimating fair value for financial instruments not recorded at fair value, but fair value is included for disclosure purposes only, as required under disclosure guidance related to the fair value of financial instruments.
Cash and Cash Equivalents — The carrying value of cash, amounts due from banks, federal funds sold and securities purchased under resale agreements approximates fair value.
Financing Notes Receivable — The financing notes receivable are valued on a non-recurring basis. The financing notes receivable are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Financing Notes with carrying values that are not expected to be recovered through future cash flows are written-down to their estimated net realizable value. Estimates of realizable value are determined based on unobservable inputs, including estimates of future cash flow generation and value of collateral underlying the notes.
Secured Credit Facilities — The fair value of the Company’s long-term variable-rate debt under its secured credit facilities approximates carrying value.
Unsecured Convertible Senior Notes — The fair value of the unsecured convertible senior notes is estimated using quoted market prices.

23


Carrying and Fair Value Amounts
 
Level within fair value hierarchy
 
September 30, 2017
 
December 31, 2016
 
 
Carrying
    Amount (1)
 
Fair Value
 
Carrying
    Amount (1)
 
Fair Value
Financial Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
Level 1
 
$
15,533,509

 
$
15,533,509

 
$
7,895,084

 
$
7,895,084

Financing notes receivable (Note 4)
Level 3
 
$
1,500,000

 
$
1,500,000

 
$
1,500,000

 
$
1,500,000

Financial Liabilities:
 
 
 
 
 
 
 
 
Secured Credit Facilities
Level 2
 
$
17,534,177

 
$
17,534,177

 
$
89,387,985

 
$
89,387,985

Unsecured convertible senior notes
Level 1
 
$
111,835,285

 
$
132,347,160

 
$
111,244,895

 
$
129,527,940

(1) The carrying value of debt balances are presented net of unamortized original issuance discount and debt issuance costs.
10. DEBT
The following is a summary of the Company's debt facilities and balances as of September 30, 2017 and December 31, 2016:
 
Total Commitment
 or Original Principal
 
Quarterly Principal Payments
 
 
 
September 30, 2017
 
December 31, 2016
 
 
 
Maturity
Date
 
Amount Outstanding
 
Interest
Rate
 
Amount Outstanding
 
Interest
Rate
CorEnergy Secured Credit Facility:
 
 
 
 
 
 
 
 
 
 
 
 
 
CorEnergy Revolver
$
160,000,000

 
$

 
7/28/2022
 
$
10,000,000

 
3.99
%
 
$
44,000,000

 
3.76
%
CorEnergy Term Loan (1)
45,000,000

 
1,615,000

 
12/15/2019
 

 

 
36,740,000

 
3.74
%
MoGas Revolver
1,000,000

 

 
7/28/2022
 

 
3.99
%
 

 
3.77
%
Omega Line of Credit
1,500,000

 

 
7/31/2018
 

 
5.24
%
 

 
4.77
%
Pinedale Secured Credit Facility:
 
 
 
 
 
 
 
 
 
 
 
 
 
$58.5M Term Loan – related party (2)
11,085,750

 
167,139

 
3/30/2021
 
7,534,177

 
8.23
%
 
8,860,577

 
8.00
%
7.00% Unsecured Convertible Senior Notes
115,000,000

 

 
6/15/2020
 
114,000,000

 
7.00
%
 
114,000,000

 
7.00
%
Total Debt
 
$
131,534,177

 
 
 
$
203,600,577

 
 
Less:
 
 
 
 
 
 
 
 
Unamortized deferred financing costs (3)
 
$
132,732

 
 
 
$
381,531

 
 
Unamortized discount on 7.00% Convertible Senior Notes
 
2,031,983

 
 
 
2,586,166

 
 
Long-term debt, net of deferred financing costs
 
$
129,369,462

 
 
 
$
200,632,880

 
 
Debt due within one year
 
$
668,556

 
 
 
$
7,128,556

 
 
(1) The CorEnergy Term Loan was paid off during the third quarter of 2017 in connection with entering into the amended and restated CorEnergy Credit Facility discussed below.
(2) $47.4 million of the original $58.5 million term loan is payable to CorEnergy under the same terms and eliminates in consolidation.
(3) Unamortized deferred financing costs related to our revolving credit facilities are included in Deferred Costs in the Assets section of the Consolidated Balance Sheets. Refer to the "Deferred Financing Costs" paragraph below.
CorEnergy Credit Facility
On July 8, 2015, the Company amended and upsized its credit facility with Regions Bank (as lender and administrative agent for the other participating lenders) to provide borrowing commitments of $153.0 million, consisting of (i) a $105.0 million revolver at the CorEnergy parent entity level (the "CorEnergy Revolver"), (ii) a $45.0 million term loan at the CorEnergy parent entity level (the "CorEnergy Term Loan") and (iii) a $3.0 million revolving credit facility at the MoGas subsidiary entity level (the "MoGas Revolver" and, collectively with the CorEnergy Revolver and the CorEnergy Term Loan, the "CorEnergy Credit Facility").
On April 18, 2017, the Company repaid the $44.0 million in outstanding borrowings on the CorEnergy Revolver with a portion of the proceeds from a follow-on offering of its 7.375% Series A Preferred Stock, as discussed further in Note 11 ("Stockholder's Equity").
On July 28, 2017, the Company entered into an amendment and restatement of the CorEnergy Credit Facility with Regions Bank (as lender and administrative agent for other participating lenders). The amended facility provides for borrowing commitments of up to $161.0 million, consisting of (i) $160.0 million on the CorEnergy Revolver, subject to borrowing base limitations, and (ii) $1.0 million on the MoGas Revolver. In connection with entering into the amended and restated facility on July 28, 2017, the Company used cash on hand and $10.0 million of borrowings under the amended facility to repay the $33.5 million outstanding balance on the CorEnergy Term Loan.

24


The amended facility has a 5-year term maturing on July 28, 2022, and provides for a springing maturity on February 28, 2020, and thereafter, if the Company fails to meet certain liquidity requirements from the springing maturity date through the maturity of the Company's convertible notes on June 15, 2020. Borrowings under the credit facility will generally bear interest on the outstanding principal amount using a LIBOR pricing grid that is expected to equal a LIBOR rate plus an applicable margin of 2.75 percent to 3.75 percent, based on the Company's senior secured recourse leverage ratio. Total availability is subject to a borrowing base. The CorEnergy Credit Facility contains, among other restrictions, certain financial covenants including the maintenance of certain financial ratios, as well as default and cross-default provisions customary for transactions of this nature (with applicable customary grace periods). As of September 30, 2017, the Company was in compliance with all covenants of the CorEnergy Credit Facility.
As of September 30, 2017, the Company had approximately $130.5 million and $1.0 million of availability under the CorEnergy Revolver and MoGas Revolver, respectively.
Pinedale Credit Facility
On December 20, 2012, Pinedale LP closed on a $70.0 million secured term credit facility. Outstanding balances under the original facility generally accrued interest at a variable annual rate equal to LIBOR plus 3.25 percent. This credit facility was secured by the Pinedale LGS asset. The credit facility remained in effect until December 31, 2015, with an option to extend through December 31, 2016. Although the Company elected not to extend the facility for an additional one-year period, it did amend the facility to extend the maturity date to March 30, 2016. During the extension period, the company made principal payments of $3.2 million and the credit facility bore interest on the outstanding principal amount at LIBOR plus 4.25 percent.
On March 4, 2016, the Company obtained a consent from its lenders under the CorEnergy Credit Facility, which permitted the Company to utilize the CorEnergy Revolving Credit Facility to refinance the Company's pro rata share of the remaining balance of the Pinedale secured term credit facility. On March 30, 2016, the Company and Prudential ("the Refinancing Lenders"), refinanced the remaining $58.5 million principal balance of the $70.0 million credit facility (on a pro rata basis equal to their respective equity interests in Pinedale LP, with the Company’s 81.05 percent share being approximately $47.4 million) and executed a series of agreements assigning the credit facility to CorEnergy Infrastructure Trust, Inc. as Agent for the Refinancing Lenders. The facility was further modified to extend the maturity date to March 30, 2021; to increase the LIBOR Rate to the greater of (i) 1.00 percent and (ii) the one-month LIBOR rate; and to increase the LIBOR Rate Spread to 7.00 percent per annum. The Company's portion of the debt and interest is eliminated in consolidation and Prudential's portion of the debt is shown as a related-party liability. The Company also terminated one of two related interest rate swaps with a notional amount of $26.3 million.
Pinedale LP's credit facility with the Refinancing Lenders limits distributions by Pinedale LP to the Company. Such distributions are permitted to the extent required for the Company to maintain its REIT qualification, so long as Pinedale LP's obligations under the credit facility have not been accelerated following an Event of Default (as defined in the credit facility). Pinedale LP automatically entered into a Cash Control Period (as defined in the credit facility) with the Refinancing Lenders upon the April 29, 2016 bankruptcy filing by Ultra Wyoming and its parent guarantor, Ultra Petroleum. During the Cash Control Period, the Company as Agent swept all funds for the repayment of accrued interest, scheduled principal payments and principal prepayments on the loans. Ultra Petroleum emerged from bankruptcy in April 2017, resulting in the end of the Cash Control Period and, in May 2017, Pinedale LP resumed distributions.
The Company has provided to Prudential a guarantee against certain inappropriate conduct by or on behalf of Pinedale LP or CorEnergy. The credit facility also requires Pinedale LP to maintain minimum net worth levels and certain leverage ratios, which along with other provisions of the credit facility limit cash dividends and loans to the Company. At September 30, 2017, the net assets of Pinedale LP were $145.0 million and Pinedale LP was in compliance with all of the financial covenants of the Pinedale Credit Facility.
Deferred Financing Costs
Previously existing deferred financing costs related to the CorEnergy Credit Facility were approximately $1.8 million, of which approximately $1.6 million will continue to be deferred and amortized under the amended and restated facility. Additionally, the Company incurred approximately $1.3 million in new debt issuance costs which have been deferred and will be amortized over the term of the new facility. The total deferred financing costs of $2.9 million are being amortized on a straight-line basis over the 5-year term of the amended and restated CorEnergy Credit Facility. Approximately $234 thousand of existing deferred costs and new debt issuance costs were expensed as a loss on extinguishment of debt related to the amendment and restatement in the Consolidated Statements of Income for each of the three and nine months ended September 30, 2017.

25


A summary of deferred financing cost amortization expenses for the three and nine months ended September 30, 2017 and 2016 is as follows:
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
CorEnergy Credit Facility
$
185,948

 
$
272,074

 
$
730,096

 
$
806,452

Pinedale Credit Facility

 

 

 
156,330

Total Deferred Debt Cost Amortization Expense (1)(2)
$
185,948

 
$
272,074

 
$
730,096

 
$
962,782

(1) Amortization of deferred debt issuance costs is included in interest expense in the Consolidated Statements of Income.
(2) For the amount of deferred debt cost amortization relating to the Convertible Notes included in the Consolidated Statements of Income, refer to the Convertible Note Interest Expense table below.
Contractual Payments
The remaining contractual principal payments as of September 30, 2017 under the CorEnergy and Pinedale credit facilities are as follows:
Year
 
CorEnergy Revolver
 
Pinedale Credit Facility
 
Total
2017
 
$

 
$
167,139

 
$
167,139

2018
 

 
668,556

 
668,556

2019
 

 
668,556

 
668,556

2020
 

 
668,556

 
668,556

2021
 

 
5,361,370

 
5,361,370

Thereafter
 
10,000,000

 

 
10,000,000

Total Remaining Contractual Payments
 
$
10,000,000

 
$
7,534,177

 
$
17,534,177

Convertible Debt
On June 29, 2015, the Company completed a public offering of $115.0 million aggregate principal amount of 7.00% Convertible Senior Notes Due 2020 (the "Convertible Notes"). The Convertible Notes mature on June 15, 2020 and bear interest at a rate of 7.00 percent per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2015. On May 23, 2016, the Company repurchased $1.0 million of its convertible bonds on the open market.
The following is a summary of the impact of Convertible Notes on interest expense for the three and nine months ended September 30, 2017 and 2016:
Convertible Note Interest Expense
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
7.00% Convertible Notes
$
1,995,000

 
$
2,017,167

 
$
5,985,000

 
$
6,013,195

Discount Amortization
184,728

 
185,391

 
554,184

 
559,353

Deferred Debt Issuance Amortization
12,069

 
11,539

 
36,207

 
36,497

Total Convertible Note Interest Expense
$
2,191,797

 
$
2,214,097

 
$
6,575,391

 
$
6,609,045

The Convertible Notes were initially issued with an underwriters' discount of $3.7 million which is being amortized over the life of the Convertible Notes. Including the impact of the convertible debt discount and related deferred debt issuance costs, the effective interest rate on the Convertible Notes is approximately 7.7 percent for each of the three and nine months ended September 30, 2017 and 7.8 percent and 7.7 percent for the three and nine months ended September 30, 2016, respectively.
11. STOCKHOLDER'S EQUITY
PREFERRED STOCK
On April 18, 2017, the Company closed a follow-on underwritten public offering of 2,800,000 depository shares, each representing 1/100th of a share of 7.375% Series A Preferred Stock, at a price of $25.00 per depository share. On May 10, 2017, the Company sold an additional 150,000 depository shares at a public offering price of $25.00 per depository share in connection with the underwriters' exercise of their over-allotment option to purchase additional shares. Total proceeds from the offering were

26


approximately $71.2 million, after deducting underwriting discounts and other offering expenses. A portion of the proceeds from the offering were utilized to repay $44.0 million in outstanding borrowings under the CorEnergy Revolver. Following the offering, the Company has a total of 5,200,000 depository shares outstanding. See Note 13 ("Subsequent Events") for further information regarding the declaration of a dividend on the 7.375% Series A Preferred Stock.
COMMON STOCK
As of September 30, 2017, the Company has 11,909,244 of common shares issued and outstanding. See Note 13 ("Subsequent Events") for further information regarding the declaration of a dividend on the common stock.
SHELF REGISTRATION
On February 18, 2016, the Company had a new shelf registration statement declared effective by the SEC, pursuant to which it may publicly offer additional debt or equity securities with an aggregate offering price of up to $600.0 million.
As of September 30, 2017, the Company has is