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• | Corridor Public Holdings, Inc. and its wholly-owned subsidiary Corridor Private Holdings, Inc, hold our securities portfolio. |
• | Mowood Corridor, Inc. and its wholly-owned subsidiary, Mowood, LLC, which is the holding company for our operating company, Omega Pipeline Company, LLC. |
• | Corridor MoGas, Inc. holds the operating companies, MoGas Pipeline, LLC ("MoGas") and United Property Systems, LLC. |
• | CorEnergy BBWS, Inc., Corridor Private, and Corridor Leeds Path West, Inc. may, from time to time, hold financing notes receivable. |
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• | The independent valuation firm prepares the valuations and the supporting analysis. |
• | The valuation report is reviewed and approved by senior management. |
• | The Audit Committee of the Board of Directors reviews the supporting analysis and accepts the valuations. |
• | Lease revenue – Base rent related to the Company’s leased property is recognized on a straight-line basis over the term of the lease when collectability is reasonably assured. Contingent rent is recognized when it is earned, based on the achievement of specified performance criteria. Rental payments received in advance are classified as unearned revenue and included as a liability within the Consolidated Balance Sheets. Unearned revenue is amortized ratably over the lease period as revenue recognition criteria are met. Rental payments received in arrears are accrued and classified as Lease Receivable and included in accounts and other receivables within the Consolidated Balance Sheets. |
• | Transportation and distribution revenue – This represents revenue related to natural gas transportation, distribution, and supply. Transportation revenues are recognized by MoGas on firm contracted capacity over the contract period regardless of whether the contracted capacity is used. For interruptible or volumetric based transportation, revenue is recognized when physical deliveries of natural gas are made at the delivery point agreed upon by both parties. Distribution revenue is recognized by Omega based on agreed upon contractual terms over each annual period during the terms of the contract. Beginning February 1, 2016, under a new contract with the Department of Defense ("DOD"), gas sales and cost of (gas) sales are presented on a net basis in the Transportation and distribution revenue line. |
• | Sales revenue – Revenues related to natural gas and propane are recognized upon delivery of natural gas and propane. Omega, acting as a principal, provides natural gas and propane supply for its customers. Beginning February 1, 2016, under a new contract with the Department of Defense ("DOD"), Omega is no longer the primary obligor of product sales and as such net presentation has been determined to be appropriate, therefore gas sales and cost of (gas) sales are presented on a net basis. Prior to the new contract, Sales revenue represented amounts earned by Omega for gas and propane product sales to customers and the costs of the gas and propane were presented as cost of sales. |
• | Financing revenue – Our financing notes receivable are considered a core product offering and therefore the related interest income is presented as a component of operating income. For increasing rate loans, base interest income is recorded ratably over the life of the loan, using the effective interest rate. The net amount of deferred loan origination income and costs are amortized on a straight-line basis over the life of the loan and reported as an adjustment to yield in financing revenue. Participating financing revenues are recorded when specific performance criteria have been met. |
• | Net distributions and dividend income from investments – Distributions and dividends from investments are recorded on their ex-dates and are reflected as other income within the accompanying Consolidated Statements of Income. Distributions received from the Company’s investments are generally characterized as ordinary income, capital gains, and distributions received from investment securities. The portion characterized as return of capital is paid by our investees from their cash flow from operations. The Company records investment income, capital gains, and distributions received from investment securities based on estimates made at the time such distributions are received. Such estimates are based on information available from each company and other industry sources. These estimates may subsequently be revised based on information received from the entities after their tax reporting periods are concluded, as the actual character of these distributions is not known until after the fiscal year end of the Company. |
• | Net realized and unrealized gain (loss) from investments – Securities transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses are reported on an identified cost basis. The Company records investment income and return of capital based on estimates made at the time such distributions are received. Such estimates are based on information available from the portfolio company and other industry sources. These estimates may subsequently be revised based on information received from the portfolio company after their tax reporting periods are concluded, as the actual character of these distributions are not known until after our fiscal year end. |
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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 42-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 |
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 | 7/1/15 - 7/30/16: $2,625,417 7/1/16 - 7/30/17: $2,826,250 | $1,723,833 | $513,355 |
Initial Estimated Useful Life | 30 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. The general partner, Pinedale GP, a wholly-owned subsidiary of the Company, holds the remaining 81.05 percent of the economic interest. |
Future Minimum Lease Receipts | ||||
Years Ending December 31, | Amount | |||
2016 | $ | 30,393,548 | ||
2017 | 60,931,762 | |||
2018 | 61,139,762 | |||
2019 | 63,468,195 | |||
2020 | 70,629,654 | |||
Thereafter | 451,794,133 | |||
Total | $ | 738,357,054 |
As a Percentage of (1) | ||||||||||||
Leased Properties | Lease Revenues | |||||||||||
As of | As of | For the Three Months Ended | For the Six Months Ended | |||||||||
June 30, 2016 | December 31, 2015 | June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||
Pinedale LGS | 39.8% | 40.0% | 30.4% | 75.9% | 30.4% | 73.0% | ||||||
Grand Isle Gathering System | 50.1% | 50.1% | 59.8% | — | 59.8% | — | ||||||
Portland Terminal Facility | 9.8% | 9.6% | 9.7% | 23.8% | 9.7% | 22.2% | ||||||
Public Service of New Mexico(2) | — | — | — | — | — | 4.5% | ||||||
(1) Insignificant leases are not presented; thus percentages may not sum to 100%. | ||||||||||||
(2) The Public Service of New Mexico lease terminated on April 1, 2015. |
For the Three Months Ended | For the Six Months Ended | ||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | ||||||||||||
Depreciation Expense | |||||||||||||||
GIGS | $ | 2,153,928 | $ | — | $ | 4,297,650 | $ | — | |||||||
Pinedale | 2,217,360 | 2,217,360 | 4,434,720 | 4,434,720 | |||||||||||
Portland Terminal Facility | 318,915 | 422,403 | 205,256 | 829,236 | |||||||||||
Eastern Interconnect Project | — | — | — | 569,670 | |||||||||||
United Property Systems | 7,425 | 7,425 | 14,850 | 14,850 | |||||||||||
Total Depreciation Expense | $ | 4,697,628 | $ | 2,647,188 | $ | 8,952,476 | $ | 5,848,476 | |||||||
Amortization Expense - Deferred Lease Costs | |||||||||||||||
GIGS | $ | 7,641 | $ | — | $ | 15,282 | $ | — | |||||||
Pinedale | 15,342 | 15,342 | 30,684 | 30,684 | |||||||||||
Total Amortization Expense - Deferred Lease Costs | $ | 22,983 | $ | 15,342 | $ | 45,966 | $ | 30,684 |
June 30, 2016 | December 31, 2015 | ||||||
Net Deferred Lease Costs | |||||||
GIGS | $ | 305,729 | $ | 321,011 | |||
Pinedale | 703,770 | 734,454 | |||||
Total Deferred Lease Costs, net | $ | 1,009,499 | $ | 1,055,465 |
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Deferred Tax Assets and Liabilities | ||||||||
June 30, 2016 | December 31, 2015 | |||||||
Deferred Tax Assets: | ||||||||
Net operating loss carryforwards | $ | 1,069,948 | $ | 543,116 | ||||
Net unrealized loss on investment securities | 534,009 | 251,539 | ||||||
Loan Loss Provision | 605,107 | 1,257,436 | ||||||
Other loss carryforwards | 2,554,620 | 1,833,240 | ||||||
Sub-total | $ | 4,763,684 | $ | 3,885,331 | ||||
Deferred Tax Liabilities: | ||||||||
Basis reduction of investment in partnerships | $ | (2,106,042 | ) | $ | (2,159,058 | ) | ||
Cost recovery of leased and fixed assets | (680,057 | ) | (119,297 | ) | ||||
Sub-total | $ | (2,786,099 | ) | $ | (2,278,355 | ) | ||
Total net deferred tax asset | $ | 1,977,585 | $ | 1,606,976 |
Income Tax Expense (Benefit) | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||||||||
Application of statutory income tax rate | $ | 3,277,737 | $ | 1,436,710 | $ | 4,025,336 | $ | 2,990,144 | ||||||||
State income taxes, net of federal tax (benefit) | 25,234 | (8,988 | ) | (58,026 | ) | 28,063 | ||||||||||
Federal Tax Attributable to Income of Real Estate Investment Trust | (2,892,533 | ) | (1,476,585 | ) | (4,811,998 | ) | (2,746,705 | ) | ||||||||
Total income tax expense (benefit) | $ | 410,438 | $ | (48,863 | ) | $ | (844,688 | ) | $ | 271,502 |
Components of Income Tax Expense (Benefit) | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||||||||
Current tax expense (benefit) | ||||||||||||||||
Federal | $ | 188,467 | $ | 94,312 | $ | (438,730 | ) | $ | 486,258 | |||||||
State (net of federal tax benefit) | 15,185 | 10,167 | (35,349 | ) | 53,977 | |||||||||||
Total current tax expense (benefit) | $ | 203,652 | $ | 104,479 | $ | (474,079 | ) | $ | 540,235 | |||||||
Deferred tax expense (benefit) | ||||||||||||||||
Federal | $ | 196,737 | $ | (134,187 | ) | $ | (347,932 | ) | $ | (242,819 | ) | |||||
State (net of federal tax benefit) | 10,049 | (19,155 | ) | (22,677 | ) | (25,914 | ) | |||||||||
Total deferred tax expense (benefit) | $ | 206,786 | $ | (153,342 | ) | $ | (370,609 | ) | $ | (268,733 | ) | |||||
Total income tax expense (benefit), net | $ | 410,438 | $ | (48,863 | ) | $ | (844,688 | ) | $ | 271,502 |
Aggregate Cost of Securities for Income Tax Purposes (Unaudited) | ||||||||
June 30, 2016 | December 31, 2015 | |||||||
Aggregate cost for federal income tax purposes | $ | 4,329,517 | $ | 4,750,252 | ||||
Gross unrealized appreciation | 4,156,619 | 5,133,908 | ||||||
Gross unrealized depreciation | — | (97,500 | ) | |||||
Net unrealized appreciation | $ | 4,156,619 | $ | 5,036,408 |
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Property and Equipment | ||||||||
June 30, 2016 | December 31, 2015 | |||||||
Land | $ | 580,000 | $ | 580,000 | ||||
Natural gas pipeline | 124,713,233 | 124,386,349 | ||||||
Vehicles and trailers | 570,267 | 524,921 | ||||||
Office equipment and computers | 87,696 | 87,696 | ||||||
Gross property and equipment | $ | 125,951,196 | $ | 125,578,966 | ||||
Less: accumulated depreciation | (7,615,837 | ) | (5,948,988 | ) | ||||
Net property and equipment | $ | 118,335,359 | $ | 119,629,978 |
For the Three Months Ended | For the Six Months Ended | ||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | ||||||||||||
Depreciation Expense | $ | 842,040 | $ | 833,456 | $ | 1,676,945 | $ | 1,665,658 |
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June 30, 2016 | ||||||||||||||||
June 30, 2016 | Fair Value | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Assets: | ||||||||||||||||
Other equity securities | $ | 8,036,137 | $ | — | $ | — | $ | 8,036,137 | ||||||||
Total Assets | $ | 8,036,137 | $ | — | $ | — | $ | 8,036,137 | ||||||||
Liabilities: | ||||||||||||||||
Interest Rate Swap Derivative | $ | 124,624 | $ | — | $ | 124,624 | $ | — | ||||||||
Total Liabilities | $ | 124,624 | $ | — | $ | 124,624 | $ | — |
December 31, 2015 | ||||||||||||||||
December 31, 2015 | Fair Value | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Assets: | ||||||||||||||||
Other equity securities | $ | 8,393,683 | $ | — | $ | — | $ | 8,393,683 | ||||||||
Interest Rate Swap Derivative | 98,259 | — | 98,259 | — | ||||||||||||
Total Assets | $ | 8,491,942 | $ | — | $ | 98,259 | $ | 8,393,683 |
Level 3 Rollforward | ||||||||||||||||||||||||||||
For the Six Months Ended June 30, 2016 | 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 Losses, Included In Net Income, Relating to Securities Still Held (1) | |||||||||||||||||||||
Other equity securities | $ | 8,393,683 | $ | — | $ | — | $ | (472,416 | ) | $ | 114,869 | $ | 8,036,136 | $ | (472,416 | ) | ||||||||||||
Total | $ | 8,393,683 | $ | — | $ | — | $ | (472,416 | ) | $ | 114,869 | $ | 8,036,136 | $ | (472,416 | ) | ||||||||||||
For the Six Months Ended June 30, 2015 | ||||||||||||||||||||||||||||
Other equity securities | $ | 9,217,181 | $ | — | $ | — | $ | 451,311 | $ | 316,313 | $ | 9,984,805 | $ | 451,311 | ||||||||||||||
Warrant Investment | 355,000 | — | — | (240,000 | ) | — | 115,000 | (240,000 | ) | |||||||||||||||||||
Total | $ | 9,572,181 | $ | — | $ | — | $ | 211,311 | $ | 316,313 | $ | 10,099,805 | $ | 211,311 | ||||||||||||||
(1) Located in Net realized and unrealized gain on other equity securities in the Consolidated Statements of Income |
June 30, 2016 (Unaudited) | December 31, 2015 (Unaudited) | |||||||
Assets | ||||||||
Current assets | $ | 23,828 | $ | 24,276 | ||||
Noncurrent assets | 701,202 | 696,461 | ||||||
Total Assets | $ | 725,030 | $ | 720,737 | ||||
Liabilities | ||||||||
Current liabilities | $ | 17,578 | $ | 19,993 | ||||
Noncurrent liabilities | 264,338 | 246,808 | ||||||
Total Liabilities | $ | 281,916 | $ | 266,801 | ||||
Partner's equity | 443,114 | 453,936 | ||||||
Total liabilities and partner's equity | $ | 725,030 | $ | 720,737 |
For the Three Months Ending (Unaudited) | For the Six Months Ending (Unaudited) | |||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||||||||
Revenues | $ | 26,243 | $ | 19,110 | $ | 52,310 | $ | 32,667 | ||||||||
Operating expenses | 20,812 | 17,540 | 42,884 | 32,668 | ||||||||||||
Income (Loss) from Operations | $ | 5,431 | $ | 1,570 | $ | 9,426 | $ | (1 | ) | |||||||
Other income | 2,369 | 3,320 | 4,743 | 7,154 | ||||||||||||
Net Income | $ | 7,800 | $ | 4,890 | $ | 14,169 | $ | 7,153 | ||||||||
Less: Net Income attributable to non-controlling interests | (7,786 | ) | (4,837 | ) | (14,079 | ) | (7,063 | ) | ||||||||
Net Income attributable to Partner's Capital | $ | 14 | $ | 53 | $ | 90 | $ | 90 |
Carrying and Fair Value Amounts | ||||||||||||||||||
Level within fair value hierarchy | June 30, 2016 | December 31, 2015 | ||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||
Financial Assets: | ||||||||||||||||||
Cash and cash equivalents | Level 1 | $ | 8,116,117 | $ | 8,116,117 | $ | 14,618,740 | $ | 14,618,740 | |||||||||
Escrow receivable | Level 2 | $ | — | $ | — | $ | 1,392,917 | $ | 1,392,917 | |||||||||
Financing notes receivable (Note 5) | Level 2 | $ | 1,500,000 | $ | 1,500,000 | $ | 7,675,626 | $ | 7,675,626 | |||||||||
Hedged Derivative Asset | Level 2 | $ | — | $ | — | $ | 98,259 | $ | 98,259 | |||||||||
Financial Liabilities: | ||||||||||||||||||
Long-term debt(1) | Level 2 | $ | 162,330,789 | $ | 166,427,075 | $ | 217,375,153 | $ | 193,573,834 | |||||||||
Line of credit | Level 2 | $ | 44,000,000 | $ | 44,000,000 | $ | — | $ | — | |||||||||
Hedged Derivative Liability | Level 2 | $ | 124,624 | $ | 124,624 | $ | — | $ | — | |||||||||
(1) Includes current maturities |
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Total Commitment or Original Principal | Quarterly Principal Payments | June 30, 2016 | December 31, 2015 | ||||||||||||||||||||
Maturity Date | Amount Outstanding | Interest Rate | Amount Outstanding | Interest Rate | |||||||||||||||||||
7% Convertible Senior Notes | $ | 115,000,000 | $ | — | 6/15/2020 | $ | 114,000,000 | 7.00 | % | $ | 115,000,000 | 7.00 | % | ||||||||||
Regions Credit Facilities: | |||||||||||||||||||||||
Regions Revolver (1) | $ | 105,000,000 | $ | — | 12/15/2019 | 44,000,000 | 3.70 | % | — | 3.07 | % | ||||||||||||
Regions Term Loan | $ | 45,000,000 | $ | 1,615,000 | 12/15/2019 | 41,400,000 | 3.70 | % | 43,200,000 | 3.07 | % | ||||||||||||
MoGas Revolver | $ | 3,000,000 | $ | — | 12/15/2019 | — | 3.70 | % | — | 3.07 | % | ||||||||||||
Omega Line of Credit | $ | 1,500,000 | $ | — | 7/31/2016 | — | 4.47 | % | — | 4.43 | % | ||||||||||||
Pinedale Credit Facility: | |||||||||||||||||||||||
$70M Term Loan | $ | 70,000,000 | $ | — | 3/30/2016 | — | — | 62,532,000 | 4.67 | % | |||||||||||||
$58.5M Term Loan – related party (2) | $ | 11,085,750 | $ | 167,139 | 3/30/2021 | 10,329,185 | 8.00 | % | — | — | |||||||||||||
Total Debt | $ | 209,729,185 | $ | 220,732,000 | |||||||||||||||||||
Less: | |||||||||||||||||||||||
Unamortized deferred financing costs (3) | $ | 442,111 | $ | 510,401 | |||||||||||||||||||
Unamortized discount on 7% Convertible Senior Notes | 2,956,285 | 3,356,847 | |||||||||||||||||||||
Long-term debt, net of deferred financing costs | $ | 206,330,789 | $ | 216,864,752 | |||||||||||||||||||
(1) Included in the Consolidated Balance Sheet as Line of Credit. | |||||||||||||||||||||||
(2) $47,414,250 of the $58.5M term loan is payable to CorEnergy under the same terms, and eliminates in consolidation. | |||||||||||||||||||||||
(3) A portion of the unamortized deferred financing costs, related to our revolving credit facilities, are included in Deferred Costs in the Assets section of the Consolidated Balance Sheets. See the next table for deferred financing costs included in the Asset section of the Consolidated Balance Sheets. |
Deferred Financing Costs, net (1) | ||||||||
June 30, 2016 | December 31, 2015 | |||||||
Regions Credit Facilities | $ | 2,675,693 | $ | 2,975,476 | ||||
Pinedale Credit Facility | — | 156,330 | ||||||
Total Deferred Debt Costs, net | $ | 2,675,693 | $ | 3,131,806 | ||||
(1) This is the portion of deferred financing costs which relate to a revolving credit facility and are not presented as a reduction to Long-term debt but rather as Deferred Costs in the Asset section of the Consolidated Balance Sheets. |
Deferred Financing Cost Amortization Expense(1) | |||||||||||||||
For the Three Months Ended | For the Six Months Ended | ||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | ||||||||||||
Regions Credit Facilities | $ | 284,779 | $ | 178,714 | $ | 559,336 | $ | 355,208 | |||||||
Pinedale Credit Facility | — | 129,216 | 156,330 | 258,432 | |||||||||||
Total Deferred Debt Cost Amortization | $ | 284,779 | $ | 307,930 | $ | 715,666 | $ | 613,640 | |||||||
(1) Amortization of deferred debt issuance costs is included in interest expense in the Consolidated Statements of Income. |
Total Remaining Contractual Payments | ||||||||||||||||
Year | Regions Revolver | Regions Term Loan | Pinedale Credit Facility | Total | ||||||||||||
2016 | $ | — | $ | 4,660,000 | $ | 334,278 | $ | 4,994,278 | ||||||||
2017 | — | 6,460,000 | 668,556 | 7,128,556 | ||||||||||||
2018 | — | 6,460,000 | 668,556 | 7,128,556 | ||||||||||||
2019 | 44,000,000 | 23,820,000 | 668,556 | 68,488,556 | ||||||||||||
2020 | — | — | 668,556 | 668,556 | ||||||||||||
Thereafter | — | — | 7,320,683 | 7,320,683 | ||||||||||||
Total | $ | 44,000,000 | $ | 41,400,000 | $ | 10,329,185 | $ | 95,729,185 |
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Convertible Note Interest Expense | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||||||||
7% Convertible Notes | $ | 1,983,528 | $ | 44,722 | $ | 3,996,028 | $ | 44,722 | ||||||||
Discount Amortization | 185,727 | 4,183 | 373,962 | 4,183 | ||||||||||||
Deferred Debt Issuance Amortization | 12,703 | 197 | 24,958 | 197 | ||||||||||||
Total | $ | 2,181,958 | $ | 49,102 | $ | 4,394,948 | $ | 49,102 |
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• | The independent valuation firm prepares the valuations and the supporting analysis. |
• | The valuation report is reviewed and approved by senior management. |
• | The Audit Committee of the Board of Directors reviews the supporting analysis and accepts the valuations. |
• | Lease revenue – Base rent related to the Company’s leased property is recognized on a straight-line basis over the term of the lease when collectability is reasonably assured. Contingent rent is recognized when it is earned, based on the achievement of specified performance criteria. Rental payments received in advance are classified as unearned revenue and included as a liability within the Consolidated Balance Sheets. Unearned revenue is amortized ratably over the lease period as revenue recognition criteria are met. Rental payments received in arrears are accrued and classified as Lease Receivable and included in accounts and other receivables within the Consolidated Balance Sheets. |
• | Transportation and distribution revenue – This represents revenue related to natural gas transportation, distribution, and supply. Transportation revenues are recognized by MoGas on firm contracted capacity over the contract period regardless of whether the contracted capacity is used. For interruptible or volumetric based transportation, revenue is recognized when physical deliveries of natural gas are made at the delivery point agreed upon by both parties. Distribution revenue is recognized by Omega based on agreed upon contractual terms over each annual period during the terms of the contract. Beginning February 1, 2016, under a new contract with the Department of Defense ("DOD"), gas sales and cost of (gas) sales are presented on a net basis in the Transportation and distribution revenue line. |
• | Sales revenue – Revenues related to natural gas and propane are recognized upon delivery of natural gas and propane. Omega, acting as a principal, provides natural gas and propane supply for its customers. Beginning February 1, 2016, under a new contract with the Department of Defense ("DOD"), Omega is no longer the primary obligor of product sales and as such net presentation has been determined to be appropriate, therefore gas sales and cost of (gas) sales are presented on a net basis. Prior to the new contract, Sales revenue represented amounts earned by Omega for gas and propane product sales to customers and the costs of the gas and propane were presented as cost of sales. |
• | Financing revenue – Our financing notes receivable are considered a core product offering and therefore the related interest income is presented as a component of operating income. For increasing rate loans, base interest income is recorded ratably over the life of the loan, using the effective interest rate. The net amount of deferred loan origination income and costs are amortized on a straight-line basis over the life of the loan and reported as an adjustment to yield in financing revenue. Participating financing revenues are recorded when specific performance criteria have been met. |
• | Net distributions and dividend income from investments – Distributions and dividends from investments are recorded on their ex-dates and are reflected as other income within the accompanying Consolidated Statements of Income. Distributions received from the Company’s investments are generally characterized as ordinary income, capital gains, and distributions received from investment securities. The portion characterized as return of capital is paid by our investees from their cash flow from operations. The Company records investment income, capital gains, and distributions received from investment securities based on estimates made at the time such distributions are received. Such estimates are based on information available from each company and other industry sources. These estimates may subsequently be revised based on information received from the entities after their tax reporting periods are concluded, as the actual character of these distributions is not known until after the fiscal year end of the Company. |
• | Net realized and unrealized gain (loss) from investments – Securities transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses are reported on an identified cost basis. The Company records investment income and return of capital based on estimates made at the time such distributions are received. Such estimates are based on information available from the portfolio company and other industry sources. These estimates may subsequently be revised based on information received from the portfolio company after their tax reporting periods are concluded, as the actual character of these distributions are not known until after our fiscal year end. |
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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 42-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 |
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 | 7/1/15 - 7/30/16: $2,625,417 7/1/16 - 7/30/17: $2,826,250 | $1,723,833 | $513,355 |
Initial Estimated Useful Life | 30 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. The general partner, Pinedale GP, a wholly-owned subsidiary of the Company, holds the remaining 81.05 percent of the economic interest. |
Future Minimum Lease Receipts | ||||
Years Ending December 31, | Amount | |||
2016 | $ | 30,393,548 | ||
2017 | 60,931,762 | |||
2018 | 61,139,762 | |||
2019 | 63,468,195 | |||
2020 | 70,629,654 | |||
Thereafter | 451,794,133 | |||
Total | $ | 738,357,054 |
As a Percentage of (1) | ||||||||||||
Leased Properties | Lease Revenues | |||||||||||
As of | As of | For the Three Months Ended | For the Six Months Ended | |||||||||
June 30, 2016 | December 31, 2015 | June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||
Pinedale LGS | 39.8% | 40.0% | 30.4% | 75.9% | 30.4% | 73.0% | ||||||
Grand Isle Gathering System | 50.1% | 50.1% | 59.8% | — | 59.8% | — | ||||||
Portland Terminal Facility | 9.8% | 9.6% | 9.7% | 23.8% | 9.7% | 22.2% | ||||||
Public Service of New Mexico(2) | — | — | — | — | — | 4.5% | ||||||
(1) Insignificant leases are not presented; thus percentages may not sum to 100%. | ||||||||||||
(2) The Public Service of New Mexico lease terminated on April 1, 2015. |
For the Three Months Ended | For the Six Months Ended | ||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | ||||||||||||
Depreciation Expense | |||||||||||||||
GIGS | $ | 2,153,928 | $ | — | $ | 4,297,650 | $ | — | |||||||
Pinedale | 2,217,360 | 2,217,360 | 4,434,720 | 4,434,720 | |||||||||||
Portland Terminal Facility | 318,915 | 422,403 | 205,256 | 829,236 | |||||||||||
Eastern Interconnect Project | — | — | — | 569,670 | |||||||||||
United Property Systems | 7,425 | 7,425 | 14,850 | 14,850 | |||||||||||
Total Depreciation Expense | $ | 4,697,628 | $ | 2,647,188 | $ | 8,952,476 | $ | 5,848,476 | |||||||
Amortization Expense - Deferred Lease Costs | |||||||||||||||
GIGS | $ | 7,641 | $ | — | $ | 15,282 | $ | — | |||||||
Pinedale | 15,342 | 15,342 | 30,684 | 30,684 | |||||||||||
Total Amortization Expense - Deferred Lease Costs | $ | 22,983 | $ | 15,342 | $ | 45,966 | $ | 30,684 |
June 30, 2016 | December 31, 2015 | ||||||
Net Deferred Lease Costs | |||||||
GIGS | $ | 305,729 | $ | 321,011 | |||
Pinedale | 703,770 | 734,454 | |||||
Total Deferred Lease Costs, net | $ | 1,009,499 | $ | 1,055,465 |
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Deferred Tax Assets and Liabilities | ||||||||
June 30, 2016 | December 31, 2015 | |||||||
Deferred Tax Assets: | ||||||||
Net operating loss carryforwards | $ | 1,069,948 | $ | 543,116 | ||||
Net unrealized loss on investment securities | 534,009 | 251,539 | ||||||
Loan Loss Provision | 605,107 | 1,257,436 | ||||||
Other loss carryforwards | 2,554,620 | 1,833,240 | ||||||
Sub-total | $ | 4,763,684 | $ | 3,885,331 | ||||
Deferred Tax Liabilities: | ||||||||
Basis reduction of investment in partnerships | $ | (2,106,042 | ) | $ | (2,159,058 | ) | ||
Cost recovery of leased and fixed assets | (680,057 | ) | (119,297 | ) | ||||
Sub-total | $ | (2,786,099 | ) | $ | (2,278,355 | ) | ||
Total net deferred tax asset | $ | 1,977,585 | $ | 1,606,976 |
Income Tax Expense (Benefit) | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||||||||
Application of statutory income tax rate | $ | 3,277,737 | $ | 1,436,710 | $ | 4,025,336 | $ | 2,990,144 | ||||||||
State income taxes, net of federal tax (benefit) | 25,234 | (8,988 | ) | (58,026 | ) | 28,063 | ||||||||||
Federal Tax Attributable to Income of Real Estate Investment Trust | (2,892,533 | ) | (1,476,585 | ) | (4,811,998 | ) | (2,746,705 | ) | ||||||||
Total income tax expense (benefit) | $ | 410,438 | $ | (48,863 | ) | $ | (844,688 | ) | $ | 271,502 |
Components of Income Tax Expense (Benefit) | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||||||||
Current tax expense (benefit) | ||||||||||||||||
Federal | $ | 188,467 | $ | 94,312 | $ | (438,730 | ) | $ | 486,258 | |||||||
State (net of federal tax benefit) | 15,185 | 10,167 | (35,349 | ) | 53,977 | |||||||||||
Total current tax expense (benefit) | $ | 203,652 | $ | 104,479 | $ | (474,079 | ) | $ | 540,235 | |||||||
Deferred tax expense (benefit) | ||||||||||||||||
Federal | $ | 196,737 | $ | (134,187 | ) | $ | (347,932 | ) | $ | (242,819 | ) | |||||
State (net of federal tax benefit) | 10,049 | (19,155 | ) | (22,677 | ) | (25,914 | ) | |||||||||
Total deferred tax expense (benefit) | $ | 206,786 | $ | (153,342 | ) | $ | (370,609 | ) | $ | (268,733 | ) | |||||
Total income tax expense (benefit), net | $ | 410,438 | $ | (48,863 | ) | $ | (844,688 | ) | $ | 271,502 |
Aggregate Cost of Securities for Income Tax Purposes (Unaudited) | ||||||||
June 30, 2016 | December 31, 2015 | |||||||
Aggregate cost for federal income tax purposes | $ | 4,329,517 | $ | 4,750,252 | ||||
Gross unrealized appreciation | 4,156,619 | 5,133,908 | ||||||
Gross unrealized depreciation | — | (97,500 | ) | |||||
Net unrealized appreciation | $ | 4,156,619 | $ | 5,036,408 |
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Property and Equipment | ||||||||
June 30, 2016 | December 31, 2015 | |||||||
Land | $ | 580,000 | $ | 580,000 | ||||
Natural gas pipeline | 124,713,233 | 124,386,349 | ||||||
Vehicles and trailers | 570,267 | 524,921 | ||||||
Office equipment and computers | 87,696 | 87,696 | ||||||
Gross property and equipment | $ | 125,951,196 | $ | 125,578,966 | ||||
Less: accumulated depreciation | (7,615,837 | ) | (5,948,988 | ) | ||||
Net property and equipment | $ | 118,335,359 | $ | 119,629,978 |
For the Three Months Ended | For the Six Months Ended | ||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | ||||||||||||
Depreciation Expense | $ | 842,040 | $ | 833,456 | $ | 1,676,945 | $ | 1,665,658 |
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June 30, 2016 | ||||||||||||||||
June 30, 2016 | Fair Value | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Assets: | ||||||||||||||||
Other equity securities | $ | 8,036,137 | $ | — | $ | — | $ | 8,036,137 | ||||||||
Total Assets | $ | 8,036,137 | $ | — | $ | — | $ | 8,036,137 | ||||||||
Liabilities: | ||||||||||||||||
Interest Rate Swap Derivative | $ | 124,624 | $ | — | $ | 124,624 | $ | — | ||||||||
Total Liabilities | $ | 124,624 | $ | — | $ | 124,624 | $ | — |
December 31, 2015 | ||||||||||||||||
December 31, 2015 | Fair Value | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Assets: | ||||||||||||||||
Other equity securities | $ | 8,393,683 | $ | — | $ | — | $ | 8,393,683 | ||||||||
Interest Rate Swap Derivative | 98,259 | — | 98,259 | — | ||||||||||||
Total Assets | $ | 8,491,942 | $ | — | $ | 98,259 | $ | 8,393,683 |
Level 3 Rollforward | ||||||||||||||||||||||||||||
For the Six Months Ended June 30, 2016 | 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 Losses, Included In Net Income, Relating to Securities Still Held (1) | |||||||||||||||||||||
Other equity securities | $ | 8,393,683 | $ | — | $ | — | $ | (472,416 | ) | $ | 114,869 | $ | 8,036,136 | $ | (472,416 | ) | ||||||||||||
Total | $ | 8,393,683 | $ | — | $ | — | $ | (472,416 | ) | $ | 114,869 | $ | 8,036,136 | $ | (472,416 | ) | ||||||||||||
For the Six Months Ended June 30, 2015 | ||||||||||||||||||||||||||||
Other equity securities | $ | 9,217,181 | $ | — | $ | — | $ | 451,311 | $ | 316,313 | $ | 9,984,805 | $ | 451,311 | ||||||||||||||
Warrant Investment | 355,000 | — | — | (240,000 | ) | — | 115,000 | (240,000 | ) | |||||||||||||||||||
Total | $ | 9,572,181 | $ | — | $ | — | $ | 211,311 | $ | 316,313 | $ | 10,099,805 | $ | 211,311 | ||||||||||||||
(1) Located in Net realized and unrealized gain on other equity securities in the Consolidated Statements of Income |
June 30, 2016 (Unaudited) | December 31, 2015 (Unaudited) | |||||||
Assets | ||||||||
Current assets | $ | 23,828 | $ | 24,276 | ||||
Noncurrent assets | 701,202 | 696,461 | ||||||
Total Assets | $ | 725,030 | $ | 720,737 | ||||
Liabilities | ||||||||
Current liabilities | $ | 17,578 | $ | 19,993 | ||||
Noncurrent liabilities | 264,338 | 246,808 | ||||||
Total Liabilities | $ | 281,916 | $ | 266,801 | ||||
Partner's equity | 443,114 | 453,936 | ||||||
Total liabilities and partner's equity | $ | 725,030 | $ | 720,737 |
For the Three Months Ending (Unaudited) | For the Six Months Ending (Unaudited) | |||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||||||||
Revenues | $ | 26,243 | $ | 19,110 | $ | 52,310 | $ | 32,667 | ||||||||
Operating expenses | 20,812 | 17,540 | 42,884 | 32,668 | ||||||||||||
Income (Loss) from Operations | $ | 5,431 | $ | 1,570 | $ | 9,426 | $ | (1 | ) | |||||||
Other income | 2,369 | 3,320 | 4,743 | 7,154 | ||||||||||||
Net Income | $ | 7,800 | $ | 4,890 | $ | 14,169 | $ | 7,153 | ||||||||
Less: Net Income attributable to non-controlling interests | (7,786 | ) | (4,837 | ) | (14,079 | ) | (7,063 | ) | ||||||||
Net Income attributable to Partner's Capital | $ | 14 | $ | 53 | $ | 90 | $ | 90 |
Carrying and Fair Value Amounts | ||||||||||||||||||
Level within fair value hierarchy | June 30, 2016 | December 31, 2015 | ||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||
Financial Assets: | ||||||||||||||||||
Cash and cash equivalents | Level 1 | $ | 8,116,117 | $ | 8,116,117 | $ | 14,618,740 | $ | 14,618,740 | |||||||||
Escrow receivable | Level 2 | $ | — | $ | — | $ | 1,392,917 | $ | 1,392,917 | |||||||||
Financing notes receivable (Note 5) | Level 2 | $ | 1,500,000 | $ | 1,500,000 | $ | 7,675,626 | $ | 7,675,626 | |||||||||
Hedged Derivative Asset | Level 2 | $ | — | $ | — | $ | 98,259 | $ | 98,259 | |||||||||
Financial Liabilities: | ||||||||||||||||||
Long-term debt(1) | Level 2 | $ | 162,330,789 | $ | 166,427,075 | $ | 217,375,153 | $ | 193,573,834 | |||||||||
Line of credit | Level 2 | $ | 44,000,000 | $ | 44,000,000 | $ | — | $ | — | |||||||||
Hedged Derivative Liability | Level 2 | $ | 124,624 | $ | 124,624 | $ | — | $ | — | |||||||||
(1) Includes current maturities |
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Deferred Financing Costs, net (1) | ||||||||
June 30, 2016 | December 31, 2015 | |||||||
Regions Credit Facilities | $ | 2,675,693 | $ | 2,975,476 | ||||
Pinedale Credit Facility | — | 156,330 | ||||||
Total Deferred Debt Costs, net | $ | 2,675,693 | $ | 3,131,806 | ||||
(1) This is the portion of deferred financing costs which relate to a revolving credit facility and are not presented as a reduction to Long-term debt but rather as Deferred Costs in the Asset section of the Consolidated Balance Sheets. |
Total Commitment or Original Principal | Quarterly Principal Payments | June 30, 2016 | December 31, 2015 | ||||||||||||||||||||
Maturity Date | Amount Outstanding | Interest Rate | Amount Outstanding | Interest Rate | |||||||||||||||||||
7% Convertible Senior Notes | $ | 115,000,000 | $ | — | 6/15/2020 | $ | 114,000,000 | 7.00 | % | $ | 115,000,000 | 7.00 | % | ||||||||||
Regions Credit Facilities: | |||||||||||||||||||||||
Regions Revolver (1) | $ | 105,000,000 | $ | — | 12/15/2019 | 44,000,000 | 3.70 | % | — | 3.07 | % | ||||||||||||
Regions Term Loan | $ | 45,000,000 | $ | 1,615,000 | 12/15/2019 | 41,400,000 | 3.70 | % | 43,200,000 | 3.07 | % | ||||||||||||
MoGas Revolver | $ | 3,000,000 | $ | — | 12/15/2019 | — | 3.70 | % | — | 3.07 | % | ||||||||||||
Omega Line of Credit | $ | 1,500,000 | $ | — | 7/31/2016 | — | 4.47 | % | — | 4.43 | % | ||||||||||||
Pinedale Credit Facility: | |||||||||||||||||||||||
$70M Term Loan | $ | 70,000,000 | $ | — | 3/30/2016 | — | — | 62,532,000 | 4.67 | % | |||||||||||||
$58.5M Term Loan – related party (2) | $ | 11,085,750 | $ | 167,139 | 3/30/2021 | 10,329,185 | 8.00 | % | — | — | |||||||||||||
Total Debt | $ | 209,729,185 | $ | 220,732,000 | |||||||||||||||||||
Less: | |||||||||||||||||||||||
Unamortized deferred financing costs (3) | $ | 442,111 | $ | 510,401 | |||||||||||||||||||
Unamortized discount on 7% Convertible Senior Notes | 2,956,285 | 3,356,847 | |||||||||||||||||||||
Long-term debt, net of deferred financing costs | $ | 206,330,789 | $ | 216,864,752 | |||||||||||||||||||
(1) Included in the Consolidated Balance Sheet as Line of Credit. | |||||||||||||||||||||||
(2) $47,414,250 of the $58.5M term loan is payable to CorEnergy under the same terms, and eliminates in consolidation. | |||||||||||||||||||||||
(3) A portion of the unamortized deferred financing costs, related to our revolving credit facilities, are included in Deferred Costs in the Assets section of the Consolidated Balance Sheets. See the next table for deferred financing costs included in the Asset section of the Consolidated Balance Sheets. |
Deferred Financing Cost Amortization Expense(1) | |||||||||||||||
For the Three Months Ended | For the Six Months Ended | ||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | ||||||||||||
Regions Credit Facilities | $ | 284,779 | $ | 178,714 | $ | 559,336 | $ | 355,208 | |||||||
Pinedale Credit Facility | — | 129,216 | 156,330 | 258,432 | |||||||||||
Total Deferred Debt Cost Amortization | $ | 284,779 | $ | 307,930 | $ | 715,666 | $ | 613,640 | |||||||
(1) Amortization of deferred debt issuance costs is included in interest expense in the Consolidated Statements of Income. |
Total Remaining Contractual Payments | ||||||||||||||||
Year | Regions Revolver | Regions Term Loan | Pinedale Credit Facility | Total | ||||||||||||
2016 | $ | — | $ | 4,660,000 | $ | 334,278 | $ | 4,994,278 | ||||||||
2017 | — | 6,460,000 | 668,556 | 7,128,556 | ||||||||||||
2018 | — | 6,460,000 | 668,556 | 7,128,556 | ||||||||||||
2019 | 44,000,000 | 23,820,000 | 668,556 | 68,488,556 | ||||||||||||
2020 | — | — | 668,556 | 668,556 | ||||||||||||
Thereafter | — | — | 7,320,683 | 7,320,683 | ||||||||||||
Total | $ | 44,000,000 | $ | 41,400,000 | $ | 10,329,185 | $ | 95,729,185 |
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Convertible Note Interest Expense | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||||||||
7% Convertible Notes | $ | 1,983,528 | $ | 44,722 | $ | 3,996,028 | $ | 44,722 | ||||||||
Discount Amortization | 185,727 | 4,183 | 373,962 | 4,183 | ||||||||||||
Deferred Debt Issuance Amortization | 12,703 | 197 | 24,958 | 197 | ||||||||||||
Total | $ | 2,181,958 | $ | 49,102 | $ | 4,394,948 | $ | 49,102 |
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