SOUTHWEST IDEAS CONFERENCE · 2019-08-02 · Southwest IDEAS Conference NYSE: CORR | 5...

Southwest IDEAS Conference NYSE: CORR | 1

SOUTHWEST IDEAS CONFERENCEDAVID SCHULTE, PRESIDENT AND CEO

NOVEMBER 16, 2016

LISTED

CORR

NYSE


Disclaimer

This presentation contains certain statements that may include "forward-looking

statements" within the meaning of Section 27A of the Securities Act of 1933 and Section

21E of the Securities Exchange Act of 1934. All statements, other than statements of

historical fact, included herein are "forward-looking statements."

Although CorEnergy believes that the expectations reflected in these forward-looking

statements are reasonable, they do involve assumptions, risks and uncertainties, and these

expectations may prove to be incorrect. Actual results could differ materially from those

anticipated in these forward-looking statements as a result of a variety of factors, including

those discussed in CorEnergy’s reports that are filed with the Securities and Exchange

Commission. You should not place undue reliance on these forward-looking statements,

which speak only as of the date of this presentation.

Other than as required by law, CorEnergy does not assume a duty to update any forward-

looking statement. In particular, any distribution paid in the future to our stockholders will

depend on the actual performance of CorEnergy, its costs of leverage and other operating

expenses and will be subject to the approval of CorEnergy’s Board of Directors and

compliance with leverage covenants.


Infrastructure Asset Class has Desirable Investment

Characteristics

• Long-lived, critical assets to tenant operations

• High barriers to entry with strategic locations

• Contracts provide predictable revenue

• Limited sensitivity to price/volume changes

Asset Fundamentals

• High cash flow component to total return

• Attractive potential risk-adjusted returns

• Diversification vs. other asset classes

• Potential inflation protection

Investment Characteristics

• Infrastructure assets are essential for our customers’ operations to produce revenue

• CorEnergy’s triple-net leases and other contracts generate operating expense for our tenants

• Total long-term return of 8-10% on assets from base rents, plus acquisitions and participating rents

• Growing CorEnergy through disciplined acquisitions that are accretive to AFFO and dividends per share

Infrastructure REIT Strategy Overview


Energy Infrastructure is Utility-Like


Investor-Friendly Access to Infrastructure

1) “The Research Magazine Guide to Master Limited Partnerships 2015”, July 2015

2) MLPA “Master Limited Partnerships 101”, June 2016

3) REIT.com “GICS Classification of Real Estate”, September 2016, includes only equity REITs

4) Bloomberg Data

Market Cap: ~$800bn(3)(4)

Retail & Insider Institutional


REITs

• 1099 infrastructure access for institutional, tax exempt and non-US investors (no k-1, UBTI or ECI)

• REITs are not investment companies, but are eligible to be owned by investment companies

REIT structure provides more attractive access to energy infrastructure than MLP structure


MLPs Utilities

Utility & REIT markets are larger and more institutional than MLP

Market Cap: ~$350mm(4)

CorEnergy


Portland Terminal: MLP as Tenant

• 39-acre terminal to receive, store and deliver heavy and refined petroleum products

• 84 tanks with 1.5 million barrels of storage capacity; loading for ships, rail and trucks

• Triple-net operating lease with Arc Terminals; 15-year initial term, 5-year renewals

• Acquired for $40 million and financed $10 million in expansion projects


MoGas Interstate Pipeline: LDCs as Customers

• 263-mile pipeline connecting natural gas supplies to Missouri utilities

• Critical pipeline with 97% of revenues from firm transportation contracts

• Held as taxable company; subject to intercompany mortgage

• $125 million financed through issuance of new equity and preferred

600188_1.wor (NY00813G)

Pike

Calhoun

Lincoln

Audrain

Monroe

Laclede

Pulaski

Madison

SaintLouisCity

Saint Charles

Saint Louis

Chariton

Moniteau

Warren

Franklin

Phelps

BollingerCape GirardeauMadison

Saint Francois

TexasReynolds

Iron

IllinoisMissouri

Curryville Compressor

REX Connect

PEPL Connect

MRT Connect

Alexander

Bond

Christian

Clinton

Fayette

Franklin

Greene

Jackson

Jefferson

Jersey

Macon

Macoupin

Marion

Monroe

Montgomery

Morgan

Perry

Pike

Pulaski

Randolph

Saint Clair

Sangamon

Scott

Shelby

Union

Washington

Williamson

Benton

Boone

Callaway

Camden

Carroll

Cole

Cooper

Crawford

DallasDent

Gasconade

Greene

Hickory

Howard

Jefferson

Linn

LivingstonMacon

Maries

Marion

Miller

Montgomery

MorganOsage

Perry

Pettis

Polk

Ralls

Randolph

Sainte Genevieve

Saline

Shannon

Shelby

Washington

Wayne

Webster Wright


CorEnergy Strategy Withstanding Energy Market Volatility

• Since the beginning of 2015, over 105 North American energy

companies have filed for bankruptcy, accounting for ~$68 billion of

secured and unsecured debt1

• In April, the parent companies of two CorEnergy tenants, Energy XXI

Ltd and Ultra Petroleum Corp, filed Chapter 11

• GIGS tenant (EXXI subsidiary) remains outside of bankruptcy

proceedings

• Pinedale LGS tenant (UPL subsidiary) is included in Chapter 11

reorganization, UPL has agreed to assume CORR’s lease

(1) Haynes and Boone, LLP, Oil Patch Bankruptcy Monitor, October 19, 2016

CORR’s business strategy of contracting critical energy infrastructure

assets under long-term triple-net leases has endured two bankruptcies


Our Leases Preserve Terminal Value Renewal Expectation

• CorEnergy contracts are based on fair value of assets

• All leases enable tenant to either purchase asset or renew lease at fair

market value

• If parties cannot agree on value, an arbitrator will decide

• Asset value is based on production estimates in tenant reserve report

and market values for similar assets (such as MLPs)

• Same at initial purchase and renewal process

CorEnergy can assert damages claims against actions that devalue an

asset including the purchase or construction of replacement systems


Conservative Capital Structure

Capitalization

Preferred to Total Equity Ratio:

Adjusted ratio of 13.8%, below

our 33% target

Financing Ratios Well Below Targets

Total Debt to Total Capitalization Ratio:

Adjusted ratio of 33.5%, within

our target range of 25-50%

Conservative capital structure limits risk of high fixed costs, such as interest and preferred

dividend payments

• Ratio of Earnings to Fixed Charges: 2.9x

• Ratio of Earnings to Fixed Charges and Preferred Dividends: 2.3x

($ in millions) September 30, 2016

Secured Credit Facilities $91.7

Convertible Debt, proceeds gross of fees $114.0

Total Debt $205.7

Preferred Stock $56.3

Common Stock $351.8

Total Equity $408.0

Total Capitalization $613.7

CorEnergy is compliant with all secured and unsecured debt covenants


Durable Revenues + Low Leverage = Dividend Stability

• Lease payments produce predictable cash flows

• Assets are critical to tenant revenue production

• Lease expense is an operating cost (not a financing cost)

• Lease payments have been made during bankruptcy

• Results in utility-like consistency of revenue for CORR

• Conservative leverage profile & multiple capital sources

• We believe the $3.00 annualized dividend is a sustainable payout,

pending outcomes of the bankruptcy process

• Dividends are based solely on minimum rents

• CorEnergy retains debt repayment and reinvestment capital prior to

dividend payment

• Upside from portfolio growth and participating rents

Energy REIT provided a new business model in 2012:

Investor friendly access to infrastructure assets


Looking Forward to 2017

• $63.4 million of

available liquidity(1)

• Bank Debt

• Convertible Debt

• Preferred Equity

• Common Equity

• Co-Investor

Financing Options

One to Two Acquisitions

Size Range of $50-250 Million

2017

(1) As of September 30, 2016

Key bankruptcy

milestones near

achievement

Our team is active

analyzing potential

transactions

Today


APPENDIX


Dave SchulteCo-Founder, CEO & PresidentOversees CorEnergy team, investment decisions

and corporate financing

Rick GreenCo-Founder & Executive Chairman

Oversees CorEnergy team, Board of Directors

and investments decisions; manages operating

partners relationships

Becky SandringSenior Vice President, Secretary &

TreasurerSpecializes in implementation of complex

accounting policies for asset acquisitions

Jeff FulmerSenior Vice PresidentGenerates transactions through operator outreach;

performs due diligence on assets

Rick KreulPresident, MoWood, LLC

Oversees CorEnergy assets; performs due

diligence for acquisitions

Nate PoundstoneChief Accounting Officer

Streamlines and enhances accounting and

disclosure practices

Jeff TeevenVice President of FinanceDevelops efficient capital structure; manages

banking and investor relationships

Wesley BrownSenior Manager, Business Development

Performs due diligence, financial modeling and

forecasting for potential acquisitions

Management Expertise in Energy & Finance


Pinedale LGS Case Study

• $228 million asset, acquired with Prudential as a co-investor

• 150 miles of pipeline, 107 receipt points, 4 above-ground facilities

• Critical to operation of Ultra Petroleum’s Pinedale natural gas field

• 15-year triple-net lease; rent $20 million per year + participating features

Pinedale Liquids

Gathering System


(in millions)

Reserve Category

Total

Reserves

Reserves Served by

Pinedale LGS

Proved $7,951 $7,394

Probable & Possible $2,235 $2,079

Total 3P Reserves $10,186 $9,473

Pinedale LGS Supports Large Reserves & Low-Cost Operator

(1) UPL 3Q16 10-Q Filing, (2) CorEnergy Estimate, (3) Stifel Estimates, includes PUDs Reclassified by UPL, due to SEC rules related to capital constraints, (4) Declarations of Garland R.

Shaw in Support of Chapter 11 Petitions and First Day Motions

UPL Reserve Values as of 9/30/2016

3

1

2

2

UPL Continues to Drive Down Well Costs4

To

tal W

ell

Cost ($

MM

)

Production Costs at Pinedale are Low vs. National Average4

Cash C

osts

Per

Mcfe

CORR Lease Payment

= $0.07/Mcfe1

• Pinedale LGS supports $9.5 billion, or ~93% of

UPL reserves

• Lease expense is relatively small

• UPL is a low cost operator with significant

presence in a low cost field


Expected Next Steps for UPL Bankruptcy

Dec. 1:

Submission of

Business Plan

Creditors Approve

Plan

Court Confirms Plan

Exit

Bankruptcy

Expected: 2017

Disclosure Statement

Approved1

(1) Includes proposed Plan of Reorganization

Source: Ultra Petroleum Bankruptcy Court Filings

Hearing on Motion to Assume Pinedale LGS Lease: November 28, 2016

Deadline for Company’s

exclusivity period for Plan

approval is March 1, 2017

Traditional Chapter 11 Case Timeline

Company files

for Chapter 11

UPL

is

here


Grand Isle Gathering System Case Study

• ~$250 million critical midstream infrastructure in the Gulf of Mexico

• 153 miles of undersea pipeline and terminal with separation, SWD and storage facilities

• Essential system to transport crude oil and produced water for large proven reserves

• Triple-net operating lease with Energy XXI subsidiary – average minimum rent of ~$40

million


GIGS Supports Large Reserves & Low-Cost Operator

(1) EXXI 8-K filed 10/31/16, (2) CorEnergy Estimate, (3) Includes PUDs Reclassified by EXXI, due to SEC rules related to capital constraints, 4) EXXI 2016 10-K

• The GIGS supports $1.3 billion, or ~40% of

EXXI reserves

• Lease expense is relatively small

• EXXI dedicated to further cost reduction

EXXI Unlevered Cash Expenses Per BOE4

Lease Operating Expense , Gathering &

Transportation, Production Tax$19.41

CORR Lease Expense21.60

Field Level Cash Expense $21.01

General and Administrative 5.35

Total Cash Expenses $26.36

EXXI Reserve Values as of 9/14/16

(in millions)

Reserve Category

Total

Reserves1

Reserves Served by

GIGS2

Proved3 $1,114 $446

Probable $1,195 $478

Possible $1,003 $401

Total 3P Reserves $3,312 $1,325


Expected Next Steps for EXXI Bankruptcy

Negotiate Plan

with Lenders

Creditors Approve

Plan Court Confirms Plan

Exit

Bankruptcy

Expected: Fourth

Quarter 2016

Disclosure Statement

Approved1

Traditional Chapter 11 Case Timeline

Company files

for Chapter 11

(1) Includes proposed Plan of Reorganization

Source: Energy XXI Bankruptcy Court Filings

Nov. 14:

Confirmation

Hearing

Begins

Deadline for Company’s

exclusivity period for

Plan approval is

November 15, 2016

EXXI

is

here


Corporate Structure Alignment with Investors

CORR Expense Metrics vs. Peer Group1

Base Fee

Incentive Fee

Administration Fee

Grand Isle

Gathering

System

Pinedale

LGS

MoGas

Pipeline

Portland

Terminal

SWD

Facilities

Omega

Pipeline

Assets Fees

Management Fee

◼ Services provided:

◼ Presents the Company with suitable acquisition opportunities,

responsible for the day-to-day operations of the Company and

performs such services and activities relating to the assets and

operations of the Company as may be appropriate

◼ Base Fees paid:

◼ Quarterly management fee equal to 0.25 percent (1.00 percent

annualized) of the value of the Company’s Managed Assets3 as of

the end of each quarter

◼ Incentive Fees paid:

◼ Quarterly incentive fee of 10 percent of the increase in distributions

earned over a threshold distribution equal to $0.625 per share per

quarter. The Management Agreement also requires at least half of

any incentive fees to be reinvested in the Company’s common

stock

Administrative Fee

◼ Services provided:

◼ Performs (or oversees or arranges for the performance of) the

administrative services necessary for our operation, including

without limitation providing us with equipment, clerical, bookkeeping

and record keeping services

◼ Fees paid:

◼ 0.04 percent of our aggregate average daily Managed Assets, with

a minimum annual fee of $30 thousand

External Fee Structure Corporate Structure

(1) Peer group consists of REITs included in the RMZ index under $1BN market cap

(2) Gross Asset Value = Asset Value of Investment Properties + Accumulated Depreciation

(3) “Managed Assets” is defined as Total Assets of CORR minus the initial invested value of non-controlling interests, the value of any hedged derivative assets, any prepaid

expenses, all of the accrued liabilities other than deferred taxes and debt entered into for the purposed of leverage

Management

Agreement


Non-GAAP Financial Metrics: FFO/AFFO Reconciliation

September 30, 2016 September 30, 2015 September 30, 2016 September 30, 2015

Net Income attributable to CorEnergy Stockholders 9,231,185$ 427,219$ 21,576,833$ 8,698,985$

Less:

Preferred Dividend Requirements 1,037,109 1,037,109 3,111,327 2,811,718

Net Income (loss) attributable to Common Stockholders 8,194,076 (609,890) 18,465,506 5,887,267

Add:

Depreciation 5,537,179 5,644,320 16,166,599 13,158,454

Less:

Non-Controlling Interest attributable to NAREIT FFO reconciling items 411,455 411,455 1,234,364 1,234,365

NAREIT funds from operations (NAREIT FFO) 13,319,800 4,622,975 33,397,741 17,811,356

Add:

Distributions received from investment securities 278,782 274,550 753,655 742,056

Income tax expense (benefit) from investment securities 645,083 (450,699) 703,211 50,398

Less:

Net distributions and dividend income 277,523 241,563 867,265 1,025,381

Net realized and unrealized gain (loss) on other equity securities 1,430,858 (1,408,751) 1,001,771 (915,568)

Funds from operations adjusted for securities investments (FFO) 12,535,284 5,614,014 32,985,571 18,493,997

NAREIT FFO, FFO Adjusted for Securities Investment and AFFO Reconciliation

For the Three Months Ended For the Nine Months Ended


Non-GAAP Financial Metrics: FFO/AFFO Reconciliation

(1) Based on the economic return to CorEnergy resulting from the sale of our 40 percent undivided interest in the Eastern Interconnect Project (EIP), we determined that it was appropriate to

eliminate the portion of EIP lease income attributable to return of capital, as a means to more accurately reflect the EIP lease revenue contribution to CorEnergy-sustainable AFFO. CorEnergy

believes that the portion of the EIP lease revenue attributable to return of capital, unless adjusted, overstates CorEnergy's distribution-paying capabilities and is not representative of sustainable

EIP income over the life of the lease. The Company completed the sale of EIP on April 1, 2015.

(2) The number of weighted average diluted shares represents the total diluted shares for periods when the Convertible Notes were dilutive in the per share amounts presented. For periods

presented without per share dilution, the number of weighted average diluted shares for the period is equal to the number of weighted average basic shares presented.

Source: CorEnergy Form 10-Q Report for the quarter ended September 30, 2016. For additional information, please refer to our Form 10-K and Form 10-Q reports filed with the SEC.

September 30, 2016 September 30, 2015 September 30, 2016 September 30, 2015

Add:

Provision for loan losses, net of tax — 6,667,823 4,409,359 6,667,823

Transaction costs 33,984 133,009 71,899 880,307

Amortization of debt issuance costs 469,004 699,386 1,556,607 1,313,026

Amortization of deferred lease costs 22,983 22,824 68,949 53,508

Accretion of asset retirement obligation 184,104 169,521 542,561 169,521

Income tax benefit (161,931) (114,940) (459,640) (344,535)

Amortization of above market leases — — — 72,987

Unrealized gain associated with derivative instruments (60,513) (13,965) (2,818) (48,494)

Less:

EIP Lease Adjustment (1)

— — — 542,809

Non-Controlling Interest attributable to AFFO reconciling items (10,715) 23,837 35,153 69,348

Adjusted funds from operations (AFFO) 13,033,630$ 13,153,835$ 39,137,335$ 26,645,983$

Weighted Average Shares of Common Stock Outstanding:

Basic 11,872,729 11,924,148 11,909,431 10,266,380

Diluted (2)

15,327,274 15,408,998 15,379,792 11,466,292

NAREIT FFO attributable to Common Stockholders

Basic 1.12$ 0.39$ 2.80$ 1.73$

Diluted (2)

1.01$ 0.39$ 2.60$ 1.73$

FFO attributable to Common Stockholders

Basic 1.06$ 0.47$ 2.77$ 1.80$

Diluted (2)

0.96$ 0.47$ 2.57$ 1.79$

AFFO attributable to Common Stockholders

Basic 1.10$ 1.10$ 3.29$ 2.60$

Diluted 0.98$ 0.98$ 2.94$ 2.50$

NAREIT FFO, FFO Adjusted for Securities Investment and AFFO Reconciliation

For the Three Months Ended For the Nine Months Ended


Non-GAAP Financial Metrics: Fixed-Charges Ratio

(1) Fixed charges consist of interest expense, as defined under U.S. generally accepted accounting principles, on all indebtedness

(2) This line represents the amount of preferred stock dividends accumulated as of June 30, 2016.

For the Nine

Months Ended

September 30,

For the Years

Ended

November 30,

One-Month

Transition

Period Ended

December 31,

2016 2015 2014 2013 2012 2012

Earnings:

Pre-tax income from continuing operations before adjustment for income

or loss from equity investees 22,349,641$ 11,782,422$ 6,973,693$ 2,967,257$ 19,857,050$ (515,658)$

Fixed charges(1)

10,987,677$ 9,781,184$ 3,675,122$ 3,288,378$ 81,123$ 416,137$

Amortization of capitalized interest —$ —$ —$ —$ —$ —$

Distributed income of equity investees 867,265$ 1,270,754$ 1,836,783$ 584,814$ (279,395)$ 2,325$

Pre-tax losses of equity investees for which charges arising from guarantees

are included in fixed charges —$ —$ —$ —$ —$ —$

Subtract:

Interest capitalized —$ —$ —$ —$ —$ —$

Preference security dividend requirements of consolidated subsidiaries —$ —$ —$ —$ —$ —$

Noncontrolling interest in pre-tax income of subsidiaries that have not incurred

fixed charges —$ —$ —$ —$ —$ —$

Earnings 34,204,583 22,834,360 12,485,598 6,840,449 19,658,778 (97,196)

Combined Fixed Charges and Preference Dividends:

Fixed charges(1)

10,987,677$ 9,781,184$ 3,675,122$ 3,288,378$ 81,123$ 416,137$

Preferred security dividend(2)

3,111,327 3,848,828 — — — —

Combined fixed charges and preference dividends 14,099,004 13,630,012 3,675,122 3,288,378 81,123 416,137

Ratio of earnings to fixed charges 3.11 2.33 3.40 2.08 242.70 (0.23)

Ratio of earnings to combined fixed charges and preference dividends 2.43 1.68 3.40 2.08 242.70 (0.23)

Combined Fixed Charges Deficiency (513,333)

Ratio of Earnings to Combine Fixed Charges and Preferred Stock

For the Years Ended December 31,

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