CorEnergy Infrastructure Trust Inc (CORR) 2017 Q2 法說會逐字稿

Greetings, and welcome to the CorEnergy Infrastructure Trust Second Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Lesley Schorgl. Thank you. You may begin.

Thank you, and welcome to CorEnergy Infrastructure Trust's Second Quarter 2017 Earnings Call. I'm joined today by David Schulte, CEO and President; Rick Green, Executive Chairman; and Nate Poundstone, Chief Accounting Officer.

The presentation materials for this call as well as information included in our press release issued Wednesday 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 laws. 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.

And now, I'd like to turn the call over to President and CEO, Dave Schulte.

Thank you, Lesley. The second quarter was a transformative period for CorEnergy.

While we maintained our stable revenue and declared our eighth consecutive quarterly dividend of $0.75, we did complete several initiatives which position the company for future growth. First, because we had our final material tenant exiting a bankruptcy process in April, we were able to complete 2 financings, which significantly enhanced our balance sheet and liquidity. Nate will illustrate these transactions for you in a moment. We also prepared our organization to resume growth.

In recent months, we made a number of additions to the CorEnergy team, including expanding the depth of our business development team. Recently, CorEnergy added as Vice President, Sean DeGon, a chemical engineer who will focus on asset due diligence and new business. Sean will be based in Houston, where he was most recently a director at IHS Markit and has nearly 20 years of energy industry experience.

Chris Wolf joined the company as a Senior Operations Analyst and is responsible for assisting in asset acquisition modeling and portfolio management. Chris spent 4 years at GE Energy Financial Services, where he concentrated on project finance investments in the power sector. He is also a CPA with a master's degree in Energy Finance from the University of Texas.

And finally, we transitioned Christian Scharosch from his tax and SOX compliance role to a new position focused on due diligence, transaction structuring and valuation for our business development team. Christian has been with CorEnergy since May of 2013 and holds a master's degree in Accounting with an emphasis in tax, and is also a CPA.

In addition to the expansion of our business development group, we made additions and enhancements to our accounting and compliance teams. Nate Poundstone has added 3 new professionals from industry and accounting firms to his staff to augment our capabilities.

We've assembled a strong team at CorEnergy and believe these changes provide increased expertise and bandwidth as we look to assess and acquire assets to manage our portfolio of existing assets and to enhance our reporting and compliance functions.

As to our portfolio of assets, we continue to explore opportunities on the MoGas Pipeline. We concluded our open season on June 30. However, from the interest received, we do not expect immediate incremental revenue to result from that initiative. We're, nonetheless, continuing to investigate marketing options, including engaging shippers to use MoGas connectivity to take advantage of basis differentials from different producing basins, finding new end-use customers, new cogeneration customer potential and increased capacity from existing shippers.

In addition, MoGas has the right to request from FERC adjustments to its rates to mitigate the effect of higher operating costs or lost revenues. Now if we pursue that process, it could roughly coincide with the November 2018 effective date of the new lower rate on the Laclede contract.

Now I'd like to turn the call over to Nate to discuss our recent results and our financial position. Nate?

Thanks, Dave. Once again, this quarter, you'll see that our financial performance metrics have been very consistent, as illustrated by the bar charts on Slide 4.

Our AFFO for the second quarter was $0.94, down slightly versus prior quarters as a result of the increased preferred dividend requirements associated with the new shares that we issued this quarter. It has also impacted our AFFO to dividend coverage ratio, which was 1.4x for the quarter versus our target ratio of 1.5x for our current portfolio.

As a reminder, AFFO in excess of dividends is reserved and used for debt repayment, capital reinvestment activities, funding our ARO liability and other commitments deemed necessary to sustain our business model and our dividend over the long-term.

Turning to Slide 5. As discussed on last quarter's call. In April, we closed on a $70 million offering of our Series A preferred stock. In May, the underwriters exercised a portion of their overallotment, resulting in the issuance of an additional 150,000 depository shares. Total proceeds from the offering and the overallotment exercise were $71.2 million, net of underwriters' discount and other offering expenses. Following the offering, we now have a total issuance of 5.2 million depository shares of our perpetual preferred equity outstanding at a total liquidation preference of $130 million.

As previously discussed, we utilized a portion of the proceeds to pay off the balance of the CorEnergy revolver back in April. We've continued to position our balance sheet for anticipated growth. Last week, we entered into an amendment and restatement of our credit facility. The new facility has been upsized for commitments of up to $160 million, subject to borrowing base limitations and is entirely under a revolver structure. You'll recall the prior facility was a $153 million facility, was $108 million in revolving commitments and a $45 million term loan. As we amortized the term loan under the prior facility, however, we only had $108 million of availability under the revolver.

In connection with entering into the new facility, we utilized the remaining proceeds from the preferred stock offering and $10 million in revolving -- revolver borrowings to repay the outstanding balance of the term loan in full. And you can see on the slide, our capital structure as of June 30, both on a historical and as adjusted for the new credit facility and paydown of the term loan. On an as-adjusted basis, our total debt to the total capitalization ratio now is approximately 21%, which is below our stated target rates of 25% to 50%. And our preferred equity to total equity at 27%, remains below our target of 33%.

Those ratios, coupled with our liquidity, which you can see was up to $146.7 million at July 31, positions our balance sheet well for growth. And when you factor in leverage that could be included from a transaction or transactions, we have the financial flexibility now to allow CorEnergy to complete one or more deals within our target size range without issuing additional preferred or common equity. We would expect such acquisitions would further benefit our AFFO, our AFFO coverage ratio and the stability and potential growth of our dividend.

Lastly, I'll mention that we are exploring options, which look to be available to refinance the Pinedale credit facility with third-party lenders, and we expect that such a refinancing of that facility could be completed during 2017. If completed, such a refinancing transaction would provide further increased liquidity since, as you'll recall, we refinanced the facility internally with our co-investor, Prudential, on a pro rata basis in March of 2016.

With that, I'll turn it back over to Dave to talk about our outlook.

Thanks, Nate. I want to finish by discussing the market environment for potential acquisitions. On Slide 6, we illustrate the energy value chain. We're seeing asset opportunities across the chain from upstream to midstream to downstream, similar to those which were already in our portfolio, such as gathering systems, which are close to the wellhead and are critical to long-term production, and storage terminals, similar to our Portland terminal. And with the addition of Sean DeGon, we have senior management team members with engineering backgrounds in each of the upstream, midstream and downstream sectors with accountability for both asset operations and new asset origination.

With the forward pricing expectations for oil and gas, virtually all upstream companies, from independents to global integrated companies, are confirming capital discipline around new projects. In this environment, CorEnergy can fund the infrastructure while enabling our partners to deploy their capital into higher-returning drilling and development activities that are core to their business models.

Considering the number and various stages of deals we are currently reviewing, we're still targeting the completion of 1 to 2 acquisitions by the end of this year. And on Slide 7, you can see how we plan to finance those projects, which are likely to still range in size between $50 million and $250 million. We continue to target a return to investors of 8% to 10% in equity on the acquisitions. And in planning for that, we do take into account the need to reinvest some portion of the cash flows from rents in future acquisitions and debt repayment, which will ultimately provide a stable and growing dividend to our investors.

Thank you for your attention, and I'd now like to take any questions.

(Operator Instructions) Our first question is from Selman Akyol from Stifel.

Can you characterize, potentially, maybe the improvement -- or put some brackets around the improvement in cash flow if you were able to refinance your Pinedale credit facility and exactly what it might mean?

Thanks, Selman, for the question. The Pinedale credit facility is currently essentially 100% equity because Prudential and Corridor-CorEnergy repurchased the loan and are paying ourselves back the interest. So in essence, we don't have any availability or any leverage on that asset today. The refinancing -- so the refinancing rates that we believe would be consistent with our bank borrowing and maybe a little wider if it's a one-asset facility, but we have to have a use for those proceeds. And currently, that would be, we believe, incremental capacity for us to do -- execute acquisitions as we described. So it would be done only if there was an accretive use of proceeds. Think of it as a typical borrowing under our existing facility.

Got it, okay. And then, I guess -- when -- you said here you look to do 1 to 2 acquisitions over the given size range. Can you guys just say, for a lack of a better word or terms, how many are in the hopper or how many different deals are you looking at, at this point?

Selman, we had a very active origination effort on the last 3 months. In addition to the significant effort of refinancing and recapitalizing our balance sheet and adding new personnel to our team, we've also been active in the market communicating our willingness to be and capability to be an active acquirer again. And I would say that we have, in our evaluation system today, approximately 10 active projects at various stages. And that's a number that we can reasonably staff, evaluate and diligence and then get to documentation on a handful and maybe close 1 to 2 by the end of the year.

(Operator Instructions) And if there are no further questions, I turn the floor back over to management for any closing comments.

Thanks, everybody, for your attention today, and we'll speak to you again in the next quarter.

Thank you. This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.