CORENERGY INFRASTRUCTURE TRUST, INC., 10-Q filed on 11/1/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
Oct. 31, 2018
Document and Entity Information [Abstract]    
Entity Registrant Name CorEnergy Infrastructure Trust, Inc.  
Entity Central Index Key 0001347652  
Document Type 10-Q  
Document Period End Date Sep. 30, 2018  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business true  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Common Stock, Shares Outstanding   11,949,298
v3.10.0.1
Consolidated Balance Sheets - USD ($)
Sep. 30, 2018
Dec. 31, 2017
Assets    
Leased property, net of accumulated depreciation of $88,045,846 and $72,155,753 $ 449,790,735 $ 465,956,467
Property and equipment, net of accumulated depreciation of $15,125,893 and $12,643,636 110,714,627 113,158,872
Financing notes and related accrued interest receivable, net of reserve of $4,600,000 and $4,100,000 1,000,000 1,500,000
Other equity securities, at fair value 1,161,034 2,958,315
Cash and cash equivalents 19,611,813 15,787,069
Deferred rent receivable 27,464,068 22,060,787
Accounts and other receivables 2,849,364 3,786,036
Deferred costs, net of accumulated amortization of $1,123,618 and $623,764 3,005,061 3,504,916
Prepaid expenses and other assets 764,090 742,154
Deferred tax asset, net 4,854,108 2,244,629
Goodwill 1,718,868 1,718,868
Total Assets 622,933,768 633,418,113
Liabilities and Equity    
Secured credit facilities, net of debt issuance costs of $224,096 and $254,646 38,129,904 40,745,354
Unsecured convertible senior notes, net of discount and debt issuance costs of $1,377,526 and $1,967,917 112,580,474 112,032,083
Asset retirement obligation 9,275,041 9,170,493
Accounts payable and other accrued liabilities 4,514,447 2,333,782
Management fees payable 1,821,311 1,748,426
Income tax liability 32,426 2,204,626
Unearned revenue 6,826,557 3,397,717
Total Liabilities 173,180,160 171,632,481
Equity    
Series A Cumulative Redeemable Preferred Stock 7.375%, $130,000,000 liquidation preference ($2,500 per share, $0.001 par value), 10,000,000 authorized; 52,000 issued and outstanding at September 30, 2018 and December 31, 2017 130,000,000 130,000,000
Capital stock, non-convertible, $0.001 par value; 11,949,298 and 11,915,830 shares issued and outstanding at September 30, 2018 and December 31, 2017 (100,000,000 shares authorized) 11,949 11,916
Additional paid-in capital 319,741,659 331,773,716
Total Equity 449,753,608 461,785,632
Total Liabilities and Equity $ 622,933,768 $ 633,418,113
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
9 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Accumulated depreciation, leased property $ 88,045,846 $ 72,155,753
Accumulated depreciation, property and equipment 15,125,893 12,643,636
Reserve for financing notes and related accrued interest receivable 4,600,000 4,100,000
Accumulated amortization, Deferred costs 1,123,618 623,764
Secured debt, debt issuance costs $ 224,096 $ 254,646
Capital stock non-convertible, par value (in dollars per share) $ 0.001 $ 0.001
Capital stock non-convertible, shares issued 11,949,298 11,915,830
Capital stock non-convertible, shares outstanding 11,949,298 11,915,830
Capital stock non-convertible, shares authorized 100,000,000 100,000,000
Series A Cumulative Redeemable Preferred Stock [Member]    
Preferred stock interest rate 7.375%  
Preferred Stock, Liquidation Preference $ 130,000,000 $ 130,000,000
Preferred Stock, Liquidation Preference (in dollars per share) $ 2,500 $ 2,500
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 52,000 52,000
Preferred stock, shares outstanding 52,000 52,000
Convertible Debt [Member]    
Discount and debt issuance costs $ 1,377,526 $ 1,967,917
v3.10.0.1
Consolidated Statements of Income and Comprehensive Income (Unaudited) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Revenue        
Lease revenue $ 18,391,983 $ 17,173,676 $ 54,259,701 $ 51,290,294
Transportation and distribution revenue 4,244,722 5,270,628 12,071,858 15,056,998
Total Revenue 22,636,705 22,444,304 66,331,559 66,347,292
Expenses        
Transportation and distribution expenses 2,241,999 2,384,182 5,349,419 5,082,732
General and administrative 3,046,481 2,632,546 8,881,314 8,252,125
Depreciation, amortization and ARO accretion expense 6,289,459 6,017,664 18,868,871 18,029,567
Provision for loan losses 0 0 500,000 0
Total Expenses 11,577,939 11,034,392 33,599,604 31,364,424
Operating Income 11,058,766 11,409,912 32,731,955 34,982,868
Other Income (Expense)        
Net distributions and dividend income 5,627 213,040 65,292 477,942
Net realized and unrealized gain (loss) on other equity securities (930,147) 1,340,197 (1,797,281) 1,410,623
Interest expense (3,183,589) (2,928,036) (9,590,427) (9,585,270)
Loss on extinguishment of debt 0 (234,433) 0 (234,433)
Total Other Expense (4,108,109) (1,609,232) (11,322,416) (7,931,138)
Income before income taxes 6,950,657 9,800,680 21,409,539 27,051,730
Taxes        
Current tax expense (benefit) (8,393) 65,131 (54,727) 89,022
Deferred tax expense (benefit) (738,274) 126,440 (1,751,615) (134,322)
Income tax expense (benefit), net (746,667) 191,571 (1,806,342) (45,300)
Net income 7,697,324 9,609,109 23,215,881 27,097,030
Less: Net Income attributable to non-controlling interest 0 431,825 0 1,250,096
Net Income attributable to CorEnergy Stockholders 7,697,324 9,177,284 23,215,881 25,846,934
Preferred dividend requirements 2,396,875 2,396,875 7,190,625 5,557,113
Net Income attributable to Common Stockholders 5,300,449 6,780,409 16,025,256 20,289,821
Net Income 7,697,324 9,609,109 23,215,881 27,097,030
Other comprehensive income:        
Changes in fair value of qualifying hedges / AOCI attributable to CorEnergy stockholders 0 3,038 0 9,016
Changes in fair value of qualifying hedges / AOCI attributable to non-controlling interest 0 710 0 2,106
Net Change in Other Comprehensive Income 0 3,748 0 11,122
Total Comprehensive Income 7,697,324 9,612,857 23,215,881 27,108,152
Less: Comprehensive income attributable to non-controlling interest 0 432,535 0 1,252,202
Comprehensive Income attributable to CorEnergy Stockholders $ 7,697,324 $ 9,180,322 $ 23,215,881 $ 25,855,950
Earnings Per Common Share:        
Basic (in dollars per share) $ 0.44 $ 0.57 $ 1.34 $ 1.71
Diluted (in dollars per share) $ 0.44 $ 0.57 $ 1.34 $ 1.71
Weighted Average Shares of Common Stock Outstanding:        
Basic (in shares) 11,939,360 11,904,933 11,928,929 11,896,803
Diluted (in shares) 11,939,360 11,904,933 11,928,929 11,896,803
Dividends declared per share (in dollars per share) $ 0.750 $ 0.750 $ 2.250 $ 2.25
v3.10.0.1
Consolidated Statement of Equity - USD ($)
Total
Capital Stock [Member]
Preferred Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cumulative transition adjustment upon the adoption of ASC 606, net of tax $ (2,449,245)     $ (2,449,245)  
Beginning balance (in shares) at Dec. 31, 2017 11,915,830 11,915,830      
Beginning balance at Dec. 31, 2017 $ 461,785,632 $ 11,916 $ 130,000,000 331,773,716 $ 0
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income 23,215,881       23,215,881
Series A preferred stock dividends (7,190,625)       (7,190,625)
Common stock dividends (26,831,916)     (10,806,660) (16,025,256)
Common stock issued under director's compensation plan (in shares)   1,807      
Common stock issued under director's compensation plan 67,500 $ 2   67,498  
Common stock issued upon conversion of convertible notes (in shares)   1,271      
Common stock issued upon conversion of convertible notes 42,654 $ 1   42,653  
Reinvestment of dividends paid to common stockholders (in shares)   30,390      
Reinvestment of dividends paid to common stockholders 1,113,727 $ 30   1,113,697  
Ending balance at Sep. 30, 2018 $ 449,753,608 $ 11,949 $ 130,000,000 $ 319,741,659 $ 0
Ending balance (in shares) at Sep. 30, 2018 11,949,298 11,949,298      
v3.10.0.1
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Operating Activities    
Net Income $ 23,215,881 $ 27,097,030
Adjustments to reconcile net income to net cash provided by operating activities:    
Deferred income tax, net (1,751,615) (134,322)
Depreciation, amortization and ARO accretion 19,929,691 19,350,053
Provision for loan losses 500,000 0
Loss on extinguishment of debt 0 234,433
Non-cash settlement of accounts payable 0 (221,609)
(Gain) loss on sale of equipment (8,416) 4,203
Net distributions and dividend income, including recharacterization of income 0 148,649
Net realized and unrealized (gain) loss on other equity securities 1,797,281 (1,410,623)
Unrealized loss on derivative contract 0 13,154
Common stock issued under directors' compensation plan 67,500 67,500
Changes in assets and liabilities:    
Increase in deferred rent receivable (5,403,281) (5,383,904)
Decrease in accounts and other receivables 936,672 685,312
Increase in prepaid expenses and other assets (22,001) (105,866)
Increase in management fee payable 72,885 26,732
Increase in accounts payable and other accrued liabilities 2,436,421 2,437,100
Decrease in current income tax liability (2,172,200) 0
Increase in unearned revenue 121,731 29,695
Net cash provided by operating activities 39,720,549 42,837,537
Investing Activities    
Purchases of property and equipment (94,980) (50,924)
Proceeds from sale of property and equipment 17,999 0
Return of capital on distributions received 0 91,201
Net cash (used in) provided by investing activities (76,981) 40,277
Financing Activities    
Debt financing costs (264,010) (1,342,681)
Net offering proceeds on Series A preferred stock 0 71,161,531
Dividends paid on Series A preferred stock (7,190,625) (5,830,859)
Dividends paid on common stock (25,718,189) (26,034,749)
Distributions to non-controlling interest 0 (1,126,231)
Advances on revolving line of credit 0 10,000,000
Advances on revolving line of credit 0 (44,000,000)
Principal payments on secured credit facilities (2,646,000) (38,066,400)
Net cash used in financing activities (35,818,824) (35,239,389)
Net Change in Cash and Cash Equivalents 3,824,744 7,638,425
Cash and Cash Equivalents at beginning of period 15,787,069 7,895,084
Cash and Cash Equivalents at end of period 19,611,813 15,533,509
Supplemental Disclosure of Cash Flow Information    
Interest paid 6,404,134 6,301,929
Income taxes paid (net of refunds) 2,117,473 197,202
Non-Cash Financing Activities    
Change in accounts payable and accrued expenses related to debt financing costs (255,037) 0
Reinvestment of distributions by common stockholders in additional common shares 1,113,727 727,518
Common stock issued upon conversion of convertible notes $ 42,654 $ 0
v3.10.0.1
Introduction and Basis of Presentation
9 Months Ended
Sep. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
INTRODUCTION AND BASIS OF PRESENTATION
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 its depositary shares representing 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.
Basis of Presentation
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 have been reduced by the portion of net earnings attributable to non-controlling interests, when applicable.
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 variable interest entity ("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. However, 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 this evaluation and the Company's 100 percent ownership of the limited partnership interest in both Pinedale LP and Grand Isle Corridor LP, the consolidated financial statements presented include full consolidation with respect to both of the partnerships.
Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 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, 2017, filed with the SEC on February 28, 2018 (the "2017 CorEnergy 10-K").
v3.10.0.1
Recent Accounting Pronouncements
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
RECENT ACCOUNTING PRONOUNCEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers" ("ASU 2014-09" or "ASC 606"), which became effective for all public entities on January 1, 2018, if not adopted early. ASC 606 supersedes previously existing revenue recognition standards with a single model unless those contracts are within the scope of other standards (e.g. leases). The model requires an entity to recognize as revenue the amount of consideration to which it expects to be entitled for the transfer of promised goods or services to customers. A substantial portion of the Company's revenue consists of rental income from leasing arrangements, which is specifically excluded from ASC 606. However, the Company's transportation and distribution revenue is within the scope of the new guidance. The Company adopted ASC 606 effective on January 1, 2018 using the modified retrospective method. The Company elected to apply the guidance only to open contracts as of the effective date. The Company recognized the cumulative effect of applying the new standard as an adjustment to the opening balance of stockholders' equity. The comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. Refer to Note 4 ("Transportation And Distribution Revenue") for further discussion of our transportation and distribution revenue recognition policy, transition impact and related disclosures under ASC 606.
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. Alternatively, ASU 2018-11, "Leases (Topic 842) Targeted Improvements", allows the Company to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings and to continue to apply legacy guidance in ASC 840, "Leases," including its disclosures requirements, in the comparative periods presented in the year of adoption. Management is in the process of evaluating the impact of the standard on its consolidated financial statements and related disclosures. As part of its assessment work, the Company has formed an implementation team, completed training on the new lease standard, has nearly completed a review of its contracts and has started to assess the accounting impact for identified leases.
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 those fiscal years. 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 would not be material.
v3.10.0.1
Leased Properties and Leases
9 Months Ended
Sep. 30, 2018
Leases [Abstract]  
LEASED PROPERTIES AND LEASES
LEASED PROPERTIES AND LEASES
As of September 30, 2018, the Company had three significant 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 term 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
Portland Terminal Facility
Location
Gulf of Mexico/Louisiana
Pinedale, WY
Portland, OR
Tenant
Energy XXI GIGS Services, LLC
Ultra Wyoming LGS, LLC
Zenith Energy 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(1)
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
7/1/2017 - 6/30/2018: $2,854,667
7/1/2018 - 6/30/2019: $2,860,917
$1,776,772
$513,355
Initial Estimated
Useful Life
27 years
26 years
30 years
(1) The lessee of the Portland Terminal Facility has a purchase option on the facility, 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, 2018, are as follows:
Future Minimum Lease Receipts (1)
Years Ending December 31,
Amount
2018
$
15,453,132

2019
64,103,462

2020
71,264,921

2021
77,445,396

2022
76,553,434

Thereafter
302,242,184

Total
$
607,062,529

(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, 2018
 
December 31, 2017
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Pinedale LGS(2)
39.9
%
 
39.9
%
 
35.7
%
 
31.1
%
 
34.6
%
 
30.8
%
Grand Isle Gathering System
49.6
%
 
49.7
%
 
55.3
%
 
59.2
%
 
56.2
%
 
59.5
%
Portland Terminal Facility
10.2
%
 
10.1
%
 
8.9
%
 
9.5
%
 
9.1
%
 
9.6
%
(1) Insignificant leases are not presented; thus percentages may not sum to 100%.
 
 
 
 
(2) Pinedale LGS lease revenues include variable rent of $1.2 million and $2.8 million for the three and nine months ended September 30, 2018, respectively, and $0.1 million for each of the three and nine months ended September 30, 2017.

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, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Depreciation Expense
 
 
 
 
 
 
 
GIGS
$
2,751,272

 
$
2,438,649

 
$
8,253,816

 
$
7,315,947

Pinedale
2,217,360

 
2,217,360

 
6,652,080

 
6,652,080

Portland Terminal Facility
318,915

 
318,915

 
956,745

 
956,745

United Property Systems
9,210

 
9,059

 
27,452

 
27,178

Total Depreciation Expense
$
5,296,757

 
$
4,983,983

 
$
15,890,093

 
$
14,951,950

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
$
127,928

 
$
170,904

 
$
383,784

 
$
492,162

Total ARO Accretion Expense
$
127,928

 
$
170,904

 
$
383,784

 
$
492,162


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, 2018
 
December 31, 2017
Net Deferred Lease Costs
 
 
 
GIGS
$
236,960

 
$
259,883

Pinedale
565,691

 
611,717

Total Deferred Lease Costs, net
$
802,651

 
$
871,600


TENANT INFORMATION
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.
Ultra Petroleum
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. Its 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.
Energy Gulf Coast/Cox Oil
Prior to October 29, 2018, EGC was subject to the reporting requirements of the Exchange Act and was 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. Effective March 21, 2018, EGC changed its NASDAQ ticker symbol from EXXI to EGC. The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of EGC but has no reason to doubt the accuracy or completeness of such information. In addition, EGC 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 EGC that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing. Upon the filing by EGC of a Form 15 with the SEC on October 29, 2018, following the closing on October 18, 2018 of the previously announced acquisition of EGC by an affiliate of the privately-held Cox Oil, LLC, EGC's SEC reporting obligations were suspended and it ceased to file such reports.
Zenith
Zenith Terminals has 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 tenth anniversary, subject to the termination provisions in the lease. The fifth anniversary termination option expired unexercised on September 1, 2018.
v3.10.0.1
Transportation and Distribution Revenue
9 Months Ended
Sep. 30, 2018
Revenue from Contract with Customer [Abstract]  
Transportation and Distribution Revenue
TRANSPORTATION AND DISTRIBUTION REVENUE
The Company's contracts related to transportation and distribution revenue are primarily comprised of a mix of natural gas supply, transportation and distribution performance obligations, as well as limited performance obligations related to system maintenance and expansion. Under the Company's natural gas supply, transportation and distribution performance obligations, the customer simultaneously receives and consumes the benefit of the services as natural gas is delivered. Therefore, the transaction price is allocated proportionally over the series of identical performance obligations with each contract. The transaction price is calculated based on (i) index price, plus a contractual markup in the case of natural gas supply agreements (considered variable due to fluctuations in the index), (ii) FERC regulated rates or negotiated rates in the case of transportation agreements and (iii) contracted amounts (with annual CPI escalators) in the case of the Company's distribution agreement. Based on the nature of the agreements, revenue for all but one of the Company's natural gas supply, transportation and distribution performance obligations is recognized on a right to invoice basis as the performance obligations are met, which represents what the Company expects to receive in consideration and is representative of value delivered to the customer. The Company has a contract with Spire that has fixed pricing which varies over the contract term. For this specific contract, the transaction price has been allocated ratably over the contractual performance obligation, as discussed further below. All invoicing is done in the month following service, with payment typically due a month from invoice date.
Based on a downward revision of the rate during the Company's long-term natural gas transportation contract with Spire, ASC 606 requires the Company to record the contractual transaction price, and therefore aggregate revenue, from the contract ratably over the term of the contract. Accordingly, on January 1, 2018, the Company recorded a cumulative adjustment to recognize a contract liability of approximately $3.3 million, and a corresponding reduction to beginning equity (net of deferred tax impact). The adjustment reflects the difference in amounts previously recognized as invoiced, versus cumulative revenues earned under the contract on a straight-line basis in accordance with ASC 606, as of the date of adoption. The contract liability will continue to accumulate additional unrecognized performance obligations at a rate of approximately $992 thousand per quarter until the contractual rate decrease takes effect in November 2018. Following the rate decline, recognized performance obligations will exceed amounts invoiced and the contract liability is expected to decline at a rate of approximately $138 thousand per quarter through the end of the contract in October 2030. As of September 30, 2018, the revenue allocated to the remaining performance obligation under this contract is approximately $64.8 million.
The Company's contracts also contain performance obligations related to system maintenance and expansion, which are completed on an as-needed basis. The work performed is specific and tailored to the customer's needs and there are no alternative uses for the services provided. Therefore, as the work is being completed, control is transferring to the customer. These services are billed at the Company's cost, plus an agreed upon margin, and the Company has an enforceable right to payment for services provided. The Company invoices for this service on a monthly basis according to an agreed upon billing schedule. Revenue is recognized on an input method, based on the actual cost of a service as a measure of performance obligations satisfaction, which the Company determined to be the method which faithfully depicts the transfer of services. Differences between the amounts invoiced and revenue recognized under the input method are reflected as an asset or liability on the Consolidated Balance Sheet. Any differences are generally expected to be recognized within a year.
The table below summarizes the Company's contract asset and contract liability balances related to its transportation and distribution revenue contracts as of September 30, 2018:
 
Contract Asset(1)
 
Contract Liability(2)
Beginning Balance January 1, 2018
$
328,033

 
$

Cumulative Transition Adjustment Upon Adoption of ASC 606

 
3,307,109

Unrecognized Performance Obligations
(627,471
)
 
2,976,399

Recognized Performance Obligations
559,571

 

Ending Balance September 30, 2018
$
260,133

 
$
6,283,508

(1) The contract asset balance is included in prepaid expenses and other assets in the Consolidated Balance Sheets.
(2) The contract liability balance is included in unearned revenue in the Consolidated Balance Sheets.

The following is a breakout of the Company's transportation and distribution revenue for the three and nine months ended September 30, 2018 and 2017:
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Natural gas transportation contracts
60.3
%
 
67.2
%
 
64.2
%
 
70.9
%
Natural gas distribution contracts
24.8
%
 
19.3
%
 
26.1
%
 
20.2
%

In accordance with ASC 606 transition disclosure requirements, the cumulative effect of changes made to the Consolidated Balance Sheet as of January 1, 2018 for the adoption of ASC 606 were as follows:
Balance Sheet
 
Balance at December 31, 2017
 
Adjustments Due to ASC 606
 
Balance at
January 1, 2018
Assets
 
 
 
 
 
 
Deferred Tax Asset
 
$
2,244,629

 
$
857,864

 
$
3,102,493

Liabilities
 
 
 
 
 
 
Unearned revenue
 
3,397,717

 
3,307,109

 
6,704,826

Equity
 
 
 
 
 
 
Additional paid in capital
 
331,773,716

 
(2,449,245
)
 
329,324,471

The tables below disclose the impact of adoption on the Consolidated Balance Sheet and Consolidated Statement of Income as of and for the three and nine months ended September 30, 2018:
 
 
As of September 30, 2018
Balance Sheet
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
Assets
 
 
 
 
 
 
Deferred Tax Asset
 
$
4,854,108

 
$
3,224,166

 
$
1,629,942

Liabilities
 
 
 
 
 
 
Unearned revenue
 
6,826,557

 
543,049

 
6,283,508

Equity
 
 
 
 
 
 
Additional paid in capital
 
319,741,659

 
324,395,224

 
(4,653,565
)
 
 
For the Three Months Ended September 30, 2018
 
For the Nine Months Ended September 30, 2018
Statement of Income
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Transportation and distribution revenue
 
$
4,244,722

 
$
5,236,855

 
$
(992,133
)
 
$
12,071,858

 
$
15,048,256

 
$
(2,976,398
)
Taxes
 
 
 
 
 
 
 
 
 
 
 
 
Deferred tax benefit
 
(738,274
)
 
(480,915
)
 
(257,359
)
 
(1,751,615
)
 
(979,537
)
 
(772,078
)
v3.10.0.1
Financing Notes Receivable
9 Months Ended
Sep. 30, 2018
Receivables [Abstract]  
FINANCING NOTES RECEIVABLE
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.
Four Wood Financing Note Receivable
As a result of decreased economic activity by SWD, the Company recorded a provision for loan loss with respect to the SWD Loans and the loans were placed on non-accrual status during the first quarter of 2016. During the first quarter of 2018, the Company recorded an additional provision for loan loss on the SWD Loans of $500 thousand. The balance of the loans has been valued based on the enterprise value of SWD, the collateral supporting the loans, at $1.0 million and $1.5 million as of September 30, 2018 and December 31, 2017, respectively.
v3.10.0.1
Income Taxes
9 Months Ended
Sep. 30, 2018
Income Tax Disclosure [Abstract]  
INCOME TAXES
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, 2018 and December 31, 2017, are as follows:
Deferred Tax Assets and Liabilities
 
September 30, 2018
 
December 31, 2017
Deferred Tax Assets:
 
 
 
Deferred contract revenue
$
1,629,942

 
$

Net operating loss carryforwards
2,013,238

 
957,719

Net unrealized loss on investment securities
112,450

 

Loan loss provision
263,508

 
247,814

Basis reduction of investment in partnerships
227,416

 
261,549

Other loss carryforwards
2,965,320

 
2,965,321

Sub-total
$
7,211,874

 
$
4,432,403

Deferred Tax Liabilities:
 
 
 
Net unrealized gain on investment securities
$

 
$
(342,669
)
Cost recovery of leased and fixed assets
(2,343,500
)
 
(1,845,105
)
Basis reduction in tax goodwill
(14,266
)
 

Sub-total
$
(2,357,766
)
 
$
(2,187,774
)
Total net deferred tax asset
$
4,854,108

 
$
2,244,629


As of September 30, 2018, 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, 2014 remain open to examination by federal and state tax authorities.
The Tax Cuts and Jobs Act (the "2017 Tax Act") was enacted on December 22, 2017. The 2017 Tax Act reduces the US federal corporate tax rate from 35 percent to 21 percent. The 2017 Tax Act also repealed the alternative minimum tax for corporations. The Company has completed its provisional accounting for the tax effects of enactment of the 2017 Tax Act. Due to the timing and complexities of the new legislation, the SEC has issued Staff Accounting Bulletin 118, which allows for the recognition of provisional amounts during a measurement period similar to the measurement period used when accounting for business combinations. The Company remeasured deferred tax assets and liabilities based on the updated rates at which they are expected to reverse in the future, in the table above, which resulted in a $1.3 million transition adjustment that reduced net deferred tax assets at December 31, 2017. The Company will continue to assess the impact of the new tax legislation, as well as any future regulations and updates, and will record any additional impacts as identified during the measurement period, if necessary.
Total income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rate of 21 percent for the three and nine months ended September 30, 2018 and 35 percent for the three and nine months ended September 30, 2017 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, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Application of statutory income tax rate
$
1,459,638

 
$
3,279,099

 
$
4,496,003

 
$
9,005,926

State income taxes, net of federal tax expense (benefit)
(146,677
)
 
8,784

 
(411,696
)
 
(22,867
)
Federal Tax Attributable to Income of Real Estate Investment Trust
(2,057,531
)
 
(3,096,312
)
 
(5,876,965
)
 
(9,028,359
)
Other
(2,097
)
 

 
(13,684
)
 

Total income tax expense (benefit)
$
(746,667
)
 
$
191,571

 
$
(1,806,342
)
 
$
(45,300
)

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, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Current tax expense (benefit)
 
 
 
 
 
 
 
Federal
$
(6,643
)
 
$
58,303

 
$
(43,319
)
 
$
79,865

State (net of federal tax expense (benefit))
(1,750
)
 
6,828

 
(11,408
)
 
9,157

Total current tax expense (benefit)
$
(8,393
)
 
$
65,131

 
$
(54,727
)
 
$
89,022

Deferred tax expense (benefit)
 
 
 
 
 
 
 
Federal
$
(593,347
)
 
$
124,484

 
$
(1,351,327
)
 
$
(102,298
)
State (net of federal tax expense (benefit))
(144,927
)
 
1,956

 
(400,288
)
 
(32,024
)
Total deferred tax expense (benefit)
$
(738,274
)
 
$
126,440

 
$
(1,751,615
)
 
$
(134,322
)
Total income tax expense (benefit), net
$
(746,667
)
 
$
191,571

 
$
(1,806,342
)
 
$
(45,300
)
v3.10.0.1
Property and Equipment
9 Months Ended
Sep. 30, 2018
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Property and Equipment
 
September 30, 2018
 
December 31, 2017
Land
$
580,000

 
$
580,000

Natural gas pipeline
124,306,175

 
124,303,315

Vehicles and trailers
685,786

 
650,634

Office equipment and computers
268,559

 
268,559

Gross property and equipment
$
125,840,520

 
$
125,802,508

Less: accumulated depreciation
(15,125,893
)
 
(12,643,636
)
Net property and equipment
$
110,714,627

 
$
113,158,872



Depreciation expense was $842 thousand and $2.5 million for the three and nine months ended September 30, 2018, respectively, and $840 thousand and $2.5 million for the three and nine months ended September 30, 2017, respectively.
v3.10.0.1
Management Agreement
9 Months Ended
Sep. 30, 2018
Agreements [Abstract]  
MANAGEMENT AGREEMENT
MANAGEMENT AGREEMENT
The Company pays its manager, Corridor, pursuant to a Management Agreement as described in the 2017 CorEnergy 10-K. Fees incurred under the Management Agreement for the three and nine months ended September 30, 2018 were $1.9 million and $5.7 million, respectively, compared to $1.8 million and $5.5 million for the three and nine months ended September 30, 2017, respectively. 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, 2018 were $70 thousand and $209 thousand, respectively, compared to $68 thousand and $201 thousand for the three and nine months ended September 30, 2017, respectively. Fees incurred under the Administrative Agreement are reported in the general and administrative line item on the Consolidated Statements of Income.
v3.10.0.1
Fair Value
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
FAIR VALUE
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, 2018 and December 31, 2017:
 
September 30, 2018
 
 
 
Fair Value
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Other equity securities
$
1,161,034

 
$

 
$

 
$
1,161,034

Total Assets
$
1,161,034

 
$

 
$

 
$
1,161,034

 
December 31, 2017
 
 
 
Fair Value
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Other equity securities
$
2,958,315

 
$

 
$

 
$
2,958,315

Total Assets
$
2,958,315

 
$

 
$

 
$
2,958,315

At September 30, 2018 and December 31, 2017, the only assets and liabilities measured at fair value on a recurring basis were the Company's equity securities.
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, 2018 and 2017 are as follows:
Level 3 Rollforward
For the Nine Months Ended September 30, 2018
 
Fair Value Beginning Balance
 
Acquisitions
 
Disposals
 
Total Realized and Unrealized Gains (Losses) Included in Net Income
 
Return of Capital Adjustments Impacting Cost Basis of Securities
 
Fair Value Ending Balance
 
Changes in Unrealized Gains (Losses), Included In Net Income, Relating to Securities Still Held (1)
Other equity securities
 
$
2,958,315

 
$

 
$

 
$
(1,797,281
)
 
$

 
$
1,161,034

 
$
(1,797,281
)
Total
 
$
2,958,315

 
$

 
$

 
$
(1,797,281
)
 
$

 
$
1,161,034

 
$
(1,797,281
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

(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, 2018 and 2017.
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 both September 30, 2018 and December 31, 2017, the Company's investment in Lightfoot and Zenith Terminal Joliet Holdings are its only remaining private company investments. The Company's Lightfoot investment consists of a 6.6 percent and 1.5 percent equity interest in Lightfoot LP and Lightfoot GP, respectively. As of both September 30, 2018 and December 31, 2017, Lightfoot's only material asset consists of its remaining investment in Gulf LNG, a 1.5 billion cubic feet per day ("bcf/d") receiving, storage, and regasification terminal in Pascagoula, Mississippi. Additionally, the Company owns a 0.6 percent interest in Zenith Terminal Joliet Holdings, which was acquired in conjunction with the terms of Zenith's acquisition of Arc Logistics discussed below.
On December 21, 2017, Zenith closed its acquisition of Arc Logistics, except for terms pending with respect to the Gulf LNG arbitration with ENI USA. Under the terms of the agreement, Zenith was to purchase the remaining 4.16 percent of Lightfoot's Gulf LNG interest ("the Conditional Interest") for an additional $27.3 million upon a successful outcome (as defined) of the Gulf LNG arbitration with Eni USA that is described below.
On March 1, 2016, an affiliate of Gulf LNG received a Notice of Disagreement and Disputed Statements and a Notice of Arbitration from Eni USA, one of the two companies that had entered into a terminal use agreement for capacity of the liquefied natural gas facility owned by Gulf LNG and its subsidiaries. On June 29, 2018, the arbitration panel delivered its award, and the panel's ruling calls for the termination of the agreement and Eni USA's payment of compensation to Gulf LNG. On September 25, 2018, Gulf LNG filed a lawsuit against Eni USA in the Delaware Court of Chancery to enforce the award. On September 28, 2018, Gulf LNG filed a lawsuit against Eni S.p.A. in the Supreme Court of the State of New York in New York County to enforce a guarantee agreement entered by Eni S.p.A. in connection with the terminal use agreement.
The Company's remaining private company investments in Lightfoot and Zenith Terminal Joliet holdings represent less than 0.5 percent of its total assets. The fair value of the Company's private company investments at September 30, 2018 and December 31, 2017 was approximately $1.2 million and $3.0 million, respectively. As of September 30, 2018, the Lightfoot investment fair value was reduced to zero due to additional market information, resulting in a loss of $930 thousand and $1.8 million for the three and nine months ended September 30, 2018, respectively. The loss is recorded in net realized and unrealized gain (loss) on other equity securities in the Consolidated Statements of Income. As of December 31, 2017, the Lightfoot fair value estimate was determined using recent transaction data and expected proceeds, discounted using a risk-free rate through the expected receipt date. As of both September 30, 2018 and December 31, 2017, the Zenith Terminal Joliet Holdings fair value estimate was determined using recent transaction data. 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.
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 and fixed-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.
Carrying and Fair Value Amounts
 
Level within fair value hierarchy
 
September 30, 2018
 
December 31, 2017
 
 
Carrying
    Amount (1)
 
Fair Value
 
Carrying
    Amount (1)
 
Fair Value
Financial Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
Level 1
 
$
19,611,813

 
$
19,611,813

 
$
15,787,069

 
$
15,787,069

Financing notes receivable (Note 5)
Level 3
 
$
1,000,000

 
$
1,000,000

 
$
1,500,000

 
$
1,500,000

Financial Liabilities:
 
 
 
 
 
 
 
 
Secured Credit Facilities
Level 2
 
$
38,129,904

 
$
38,129,904

 
$
40,745,354

 
$
40,745,354

Unsecured convertible senior notes
Level 1
 
$
112,580,474

 
$
132,247,119

 
$
112,032,083

 
$
139,101,660

(1) The carrying value of debt balances are presented net of unamortized original issuance discount and debt issuance costs.
v3.10.0.1
Debt
9 Months Ended
Sep. 30, 2018
Debt Disclosure [Abstract]  
DEBT
DEBT
The following is a summary of the Company's debt facilities and balances as of September 30, 2018 and December 31, 2017:
 
Total Commitment
 or Original Principal
 
Quarterly Principal Payments
 
 
 
September 30, 2018
 
December 31, 2017
 
 
 
Maturity
Date
 
Amount Outstanding
 
Interest
Rate
 
Amount Outstanding
 
Interest
Rate
CorEnergy Secured Credit Facility:
 
 
 
 
 
 
 
 
 
 
 
 
 
CorEnergy Revolver
$
160,000,000

 
$

 
7/28/2022
 
$

 
5.01
%
 
$

 
4.32
%
MoGas Revolver
1,000,000

 

 
7/28/2022
 

 
5.01
%
 

 
4.32
%
Omega Line of Credit
1,500,000

 

 
7/31/2019
 

 
6.26
%
 

 
5.57
%
Pinedale Secured Credit Facility:
 
 
 
 
 
 
 
 
 
 
 
 
 
Amended Pinedale Term Credit Facility
41,000,000

 
882,000

 
12/29/2022
 
38,354,000

 
6.50
%
 
41,000,000

 
6.50
%
7.00% Unsecured Convertible Senior Notes
115,000,000

 

 
6/15/2020
 
113,958,000

 
7.00
%
 
114,000,000

 
7.00
%
Total Debt
 
$
152,312,000

 
 
 
$
155,000,000

 
 
Less:
 
 
 
 
 
 
 
 
Unamortized deferred financing costs (1)
 
$
308,552

 
 
 
$
375,309

 
 
Unamortized discount on 7.00% Convertible Senior Notes
 
1,293,070

 
 
 
1,847,254

 
 
Long-term debt, net of deferred financing costs
 
$
150,710,378

 
 
 
$
152,777,437

 
 
Debt due within one year
 
$
3,528,000

 
 
 
$
3,528,000

 
 
(1) 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 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.
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, 2018, the Company was in compliance with all covenants of the CorEnergy Credit Facility.
As of September 30, 2018, the Company had approximately $148.3 million and $1.0 million of availability under the CorEnergy Revolver and MoGas Revolver, respectively.
Amended Pinedale Term Credit Facility
On December 20, 2012, Pinedale LP closed on a $70.0 million secured term credit facility. 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 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 (collectively, "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.
On December 29, 2017, Pinedale LP entered into the Amended Pinedale Term Credit Facility with Prudential and a group of lenders affiliated with Prudential as the sole lenders and Prudential serving as administrative agent. Under the terms of the Amended Pinedale Term Credit Facility, Pinedale LP was provided with a 5-year $41.0 million term loan facility, bearing interest at a fixed rate of 6.5 percent, which matures on December 29, 2022. Principal payments of $294 thousand, plus accrued interest, are payable monthly. The Amended Pinedale Term Credit Facility was utilized to pay off the balance due to the Refinancing Lenders under the previously existing Pinedale LP credit facility.
Outstanding balances under the facility are secured by the Pinedale LGS assets. The Amended Pinedale Term Credit Facility contains, among other restrictions, specific financial covenants including the maintenance of certain financial coverage ratios and a minimum net worth requirement which, along with other provisions of the credit facility, limit cash dividends and loans by Pinedale LP to the Company. At September 30, 2018, the net assets of Pinedale LP were $138.4 million and Pinedale LP was in compliance with all of the financial covenants of the Amended Pinedale Term Credit Facility.
Deferred Financing Costs
A summary of deferred financing cost amortization expenses for the three and nine months ended September 30, 2018 and 2017 is as follows:
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
CorEnergy Credit Facility
$
143,636

 
$
185,948

 
$
430,906

 
$
730,096

Amended Pinedale Term Credit Facility
13,206

 

 
39,523

 

Total Deferred Debt Cost Amortization Expense (1)(2)
$
156,842

 
$
185,948

 
$
470,429

 
$
730,096

(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.

CorEnergy Credit Facilities
Prior to the July 28, 2017 credit facility amendment and restatement, previously existing deferred financing costs related to the CorEnergy Credit Facility were approximately $1.8 million, of which approximately $1.6 million 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 are being amortized over the term of the new facility. 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.
Amended Pinedale Term Credit Facility
In connection with entering into the Amended Pinedale Term Credit Facility, Pinedale LP incurred approximately $367 thousand in new debt issuance costs, of which $264 thousand were deferred and are being amortized on a straight-line basis over the 5-year term of the Amended Pinedale Term Credit Facility.
Contractual Payments
The remaining contractual principal payments as of September 30, 2018 under the Amended Pinedale Term Credit Facility are as follows:
Year
 
Amended Pinedale Term Credit Facility
2018
 
$
882,000

2019
 
3,528,000

2020
 
3,528,000

2021
 
3,528,000

2022
 
26,888,000

Thereafter
 

Total Remaining Contractual Payments
 
$
38,354,000


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. During the three months ended September 30, 2018, certain holders elected to convert approximately $42 thousand of Convertible Notes for 1,271 shares of CorEnergy common stock. The conversion rate for the Convertible Notes is 30.3030 shares of common stock per $1,000 principal amount of Convertible Notes, equivalent to a conversion price of $33.00 per share of common stock.
The following is a summary of the impact of Convertible Notes on interest expense for the three and nine months ended September 30, 2018 and 2017:
Convertible Note Interest Expense
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
7.00% Convertible Notes
$
1,994,853

 
$
1,995,000

 
$
5,984,853

 
$
5,985,000

Discount Amortization
184,728

 
184,728

 
554,184

 
554,184

Deferred Debt Issuance Amortization
12,069

 
12,069

 
36,207

 
36,207

Total Convertible Note Interest Expense
$
2,191,650

 
$
2,191,797

 
$
6,575,244

 
$
6,575,391


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, 2018 and 2017.
v3.10.0.1
Stockholder's Equity
9 Months Ended
Sep. 30, 2018
Equity [Abstract]  
STOCKHOLDER'S EQUITY
STOCKHOLDERS' EQUITY
PREFERRED STOCK
As of September 30, 2018, the Company has a total of 5,200,000 depository shares outstanding, or 52,000 whole shares of its 7.375% Series A Preferred Stock. The Company's Board of Directors authorized a share repurchase program for the Company to buy up to $10.0 million of its preferred stock, which commenced August 6, 2018. Purchases may be made through the program through August 5, 2019. The Company is not obligated to repurchase any shares of stock under the program and may terminate the program at any time. The Company did not repurchase any preferred shares during the nine months ended September 30, 2018. 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, 2018, the Company has 11,949,298 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, 2018, the Company has issued 92,605 shares of common stock under its dividend reinvestment plan pursuant to the February 18, 2016 shelf, reducing availability by approximately $2.9 million. Shelf availability was further reduced by approximately $73.8 million as a result of the follow-on offering of additional 7.375% Series A Preferred Stock during the second quarter of 2017. As of September 30, 2018, availability on the current shelf registration is approximately $523.4 million.
On October 30, 2018, the Company filed a shelf registration statement with the SEC, pursuant to which it registered 1,000,000 shares of common stock for issuance under its dividend reinvestment plan.
v3.10.0.1
Earnings Per Share
9 Months Ended
Sep. 30, 2018
Earnings Per Share [Abstract]  
EARNINGS PER SHARE
EARNINGS PER SHARE
Basic earnings per share data is computed based on the weighted-average number of shares of common stock outstanding during the periods. Diluted EPS data is computed based on the weighted-average number of shares of common stock outstanding, including all potentially issuable shares of common stock. Diluted EPS for the three and nine months ended September 30, 2018 and 2017 excludes the impact to income and the number of shares outstanding from the conversion of the 7.00% Convertible Senior Notes because such impact is antidilutive. If converted, the 7.00% Convertible Senior Notes would result in an additional 3,453,273 common shares outstanding.
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Net income attributable to CorEnergy stockholders
$
7,697,324

 
$
9,177,284

 
$
23,215,881

 
$
25,846,934

Less: preferred dividend requirements
2,396,875

 
2,396,875

 
7,190,625

 
5,557,113

Net income attributable to common stockholders
$
5,300,449

 
$
6,780,409

 
$
16,025,256

 
$
20,289,821

Weighted average shares - basic
11,939,360

 
11,904,933

 
11,928,929

 
11,896,803

Basic earnings per share
$
0.44

 
$
0.57

 
$
1.34

 
$
1.71

 
 
 
 
 
 
 
 
Net income attributable to common stockholders (from above)
$
5,300,449

 
$
6,780,409

 
$
16,025,256

 
$
20,289,821

Add: After tax effect of convertible interest

 

 

 

Income attributable for dilutive securities
$
5,300,449

 
$
6,780,409

 
$
16,025,256

 
$
20,289,821

Weighted average shares - diluted
11,939,360

 
11,904,933

 
11,928,929

 
11,896,803

Diluted earnings per share
$
0.44

 
$
0.57

 
$
1.34