CorEnergy Infrastructure Trust Inc (CORR) 2016 Q2 法說會逐字稿

Greetings, and welcome to the CorEnergy Infrastructure Trust second-quarter 2016 earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Lesley Robertshaw, Manager of Investor Relations. Thank you. You may begin.

Thank you. Welcome to CorEnergy Infrastructure Trust's second-quarter 2016 earnings call. I'm joined today by Rick Green, CorEnergy's Executive Chairman; David Schulte, CEO and President; and Becky Sandring, Chief Accounting Officer, Treasurer, and Secretary. The presentation materials for this call, as well as information included in our press release issued Tuesday, and an audio replay of this conference call will be available on CorEnergy's website.

We would like to remind you that statements made during the course of this presentation that are not purely historical may be forward-looking statements and are subject to the Safe Harbor protection available under the applicable Securities Law. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in our filings with the SEC. These documents can be accessed through the Investor Relations section of our website. We do not update our forward-looking statements.

Reconciliations between GAAP and non-GAAP results, which we discuss on this call, can be found in our related earnings release. At this time, I would like to turn the call over to President and CEO Dave Schulte.

Thanks, Lesley. Beginning with this quarter's filings, we plan to use our prepared remarks solely to provide color on our press release and then turn the call over to analysts to focus on items that they feel is most important in questions and answers.

On slide 3, we highlight a few key events that occurred since our last quarter. Our results for Q2 were essentially flat to Q1, and we declared a second-quarter dividend of $0.75, or $3 per share annualized.

We used idle cash to repurchase common shares and convertible bonds during the quarter, and with our salt water restructurings essentially complete, we will treat future receipts on those investments as returns of capital, not income, for dividend purposes. All of our tenants are current on their rent payments, so let's review the status of the bankruptcy filings on slide 4.

Beginning last quarter, we provide an updated tracking of the bankruptcy processes of both Energy XXI and Ultra Petroleum on this chart. Both companies have filed extensions to their request to delay accepting or rejecting leases. Those extensions are routinely granted by bankruptcy courts. Energy XXI has had its disclosure statement approved, which allows them to solicit credit approval for their plan of reorganization. They've announced an expectation to exit bankruptcy sometime in the fourth quarter of 2016.

UPL, on the other hand, has filed an extension request to file its plan of reorganization and associated disclosure statement until the first quarter of 2017, emerging from bankruptcy sometime thereafter. And we will update shareholders with any significant news which affects CorEnergy's interest in either proceeding.

On slide 5, we present our per-share financial metrics on a quarterly basis for the last year, for the same period which we have held our current portfolio since the acquisition of the Grand Isle Gathering System. As you can see, our adjusted funds from operations shows consistency over the trailing 12-month period, as do our dividends. CorEnergy intends to continue paying dividends based on rents received pending the outcomes of the bankruptcy processes.

As we look at slide 6, we have an overview of our capital structure. Two ratios we pay attention to remain within our targeted ranges. Our total-debt-to-total-capitalization ratio of 33.6% is within our target of 25% to 50%. And our preferred-to-total-equity ratio of approximately 14% is well below our targeted level of 33%.

At the end of the second quarter, CorEnergy had approximately $55 million of availability on its revolver, plus an additional $8 million of unrestricted cash. We do not intend to fund acquisitions, however, until significant bankruptcy milestones for Energy XXI and UPL have occurred and been disclosed to the public, both of which we expect to happen by the year-end 2016.

With that, I'd like to open questions to analysts and investors. Operator?

Thank you. The floor is now opened for questions.

(Operator Instructions)

Our first question is coming from Nick Brown of Zazove Associates. Please proceed with your question.

Thanks for taking my question. Question about your disclosures about potential acquisitions -- in your first-quarter earnings release, which was after both UPL and Energy XXI filed for bankruptcy, you indicated you were still looking to make acquisitions and now you're saying until those bankruptcies get resolved, you're not looking for acquisitions. Is there an increasing concern that they might look to reject your leases or that those lease payment -- I guess why the change now?

Well, I think if we'd been aware of the time delay associated with both bankruptcies at the time of our prior filing, we might have taken a different approach to our disclosure. And that's the disclosure we've had for several quarters previously. And frankly, we do have a pipeline of opportunities.

What we're trying to manage is, with the extended time period of at least one of the bankruptcies, and the materiality of those bankruptcies to our financial statements, is whether it's prudent to add leverage or not during a period of uncertainty. So what we're trying to caution investors to is simply the fact that we recognize it may be the more prudent course today to indicate that we won't be doing any financings until such time as we have clarity.

That's not that far away. The extension request that Ultra filed, and Energy XXI also filed one, just gets them near to the end of 2016, and at that point we'd have clarity. So I don't think it's that big of a gap in terms of being out of the market.

Okay. And then related, not so much on the topic of acquisitions, but do you think that, given that they still do have the, or I guess in Ultra's case they still do have the option of rejecting your leases, are you increasingly concerned that they might do that? Because I know in both cases you issued press releases right after they filed for bankruptcy, suggesting that there wasn't much of a chance of that.

Yes, both bankruptcy filings occurred in April, just prior to our last release. We did indicate what we knew at the time, and we've not changed our view as to the critical nature of our assets to either of these parties.

However, during the time these companies are reorganizing, we're just not privy to very much information. So reporting only what is public seems the most prudent course to us. But we're not indicating a change in our view as to the critical nature of our assets.

What we have done is take trips to see our assets. We believe they continue to be maintained in good working order, and when there's something further discloseable, we'll promptly report it.

Okay. Thank you very much for addressing those questions.

Thank you.

(Operator Instructions)

Our next question is coming from Selman Akyol of Stifel. Please proceed with your question.

Thank you. Good afternoon, Dave. Couple quick ones -- just following up on the prior line of questioning, you said probably out of the acquisition market until the end of 2016. So I guess the question really is, specifically what are you looking for out of UPL between now and then that would allow you to start looking at the acquisition market again?

Thanks. With Energy XXI as an example, they did a lot of work before they entered bankruptcy, so their process is just further advanced today. And we think that the milestone we're looking for there would be confirmation of their plan. They're out soliciting votes now.

Ultra, on the other hand, has, as indicated in our diagram, a lot of work yet to do. And that work they believe could take them through the end of, say, sometime in the first quarter of 2017.

So between now and them having a plan, which we do expect from Energy XXI, what milestones might we look for? One that we were waiting to see is whether they extended or not, and they did.

Now we have to wait until the end of November. But that's a hard date. So the end of November date, they have to accept all leases or they will be rejected by operation of law. A decision will have to be made sometime before then, by them, or at that date, there will be certainty one way or the other.

Okay. And then you think you'd get some -- so if that's by November, you still think you'd get some notice of that ahead of time?

Well, if we do and we're able to get a negotiated acceptance or an acceptance notice ahead of time, we'd certainly let you know that.

Okay. Fair enough. Then, on the Four Woods, what do you expect your ultimate resolution to be there?

We've got an investment there of around $4 million, and we think it's going to be a combination of notes and preferred equities so that we're still protected as best we can be. We've already taken a reserve there for valuation purposes. So I don't expect any change to the reserve. But all we're really trying to do is give the company some breathing room.

We think the management team is very competent in that case. They've had similar industry problems that Black Bison had. But we think our best opportunity there is to try to reposition the capital structure with a little more flexibility on their behalf, and get them out of the default posture that they're in now. So we will be protecting our investment as you would expect with continuing notes and preferred equity interests, and we're not far away from being able to get that wrapped up.

Got you. And then, in terms of just, with excess cash, you guys wouldn't look to pay down the revolver? Would you guys look to repurchase more shares or debt, or is there anything you can say about that, what you might do with some excess cash rolling in?

The excess cash we have is not very much. We were in the market repurchasing securities in the last quarter, and we decided to stop doing that. Our bonds are trading at par. Our preferred is at par. Our stock is back to something more akin to where it was before the bankruptcy filings.

So we believe the liquidity that we have is important to us, just because we're in a period of uncertainty. And frankly, we would expect that when we do announce an acquisition, we're going to use the balance sheet cash available to us to help fund it. So disposing of the cash some other way right now doesn't make a lot of sense to us.

Okay. And then the last one for me -- you have a fee waiver going on right now for a portion of the fee. Is there any thoughts or discussions in terms of extending that or doing anything different there?

It is related to the lack of earnings off of the Black Bison investment and the Four Woods investment. Until such time as we have earnings that cover that, we will probably be extending the fee waiver.

Okay. Thank you very much.

Thanks for the question.

Thank you. At this time, I'd like to turn the floor back over to Management for any additional or closing comments.

Thanks, everybody. I hope you appreciate the efficiency with which we're trying to manage these calls, and we look forward to hopefully some positive updates in the next quarter. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines at this time, and have a wonderful day.