CORENERGY INFRASTRUCTURE TRUST, INC., 10-K filed on 3/16/2015
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2014
Feb. 28, 2015
Jun. 30, 2014
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
CorEnergy Infrastructure Trust, Inc. 
 
 
Entity Central Index Key
0001347652 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2014 
 
 
Amendment Flag
false 
 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
FY 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Public Float
 
 
$ 234,453,571 
Entity Common Stock, Shares Outstanding
 
46,619,681 
 
Consolidated Balance Sheets (USD $)
Dec. 31, 2014
Dec. 31, 2013
Assets [Abstract]
 
 
Leased property, net of accumulated depreciation of $19,417,025 and $9,154,337
$ 260,280,029 
$ 221,694,020 
Leased property held for sale, net of accumulated depreciation of $5,878,933 and $3,600,251
8,247,916 
10,526,598 
Property and equipment, net of accumulated depreciation of $2,623,020 and $2,037,685
122,820,122 
3,318,483 
Financing notes and related accrued interest receivable, net
20,687,962 
Other equity securities, at fair value
9,572,181 
23,304,321 
Cash and cash equivalents
7,578,164 
17,963,266 
Escrow receivable
2,438,500 
Accounts receivable
3,604,198 
2,068,193 
Lease receivable
1,499,796 
711,229 
Intangible lease asset, net of accumulated amortization of $1,021,784 and $729,847
72,987 
364,924 
Deferred debt issuance costs, net of accumulated amortization of $1,124,655 and $572,830
3,516,167 
1,225,524 
Deferred lease costs, net of accumulated amortization of $124,641 and $63,272
795,821 
857,190 
Hedged derivative asset
351,807 
680,968 
Income tax receivable
251,021 
834,382 
Prepaid expenses and other assets
380,303 
326,561 
Goodwill
1,718,868 
Total Assets
443,815,842 
283,875,659 
Liabilities and Equity [Abstract]
 
 
Current maturities of long-term debt
3,528,000 
2,940,000 
Long-term debt
63,532,000 
67,060,000 
Accounts payable and other accrued liabilities
3,935,307 
2,224,829 
Management fees payable
1,164,399 
695,438 
Deferred tax liability
1,262,587 
5,332,087 
Line of credit
32,141,277 
81,935 
Unearned revenue
711,230 
Total Liabilities
106,274,800 
78,334,289 
Stockholders' Equity Attributable to Parent [Abstract]
 
 
Warrants, no par value; 0 and 945,594 issued and outstanding at December 31, 2014 and December 31, 2013 (5,000,000 authorized)
1,370,700 
Capital stock, non-convertible, $0.001 par value; 46,605,055 and 24,156,163 shares issued and outstanding at December 31, 2014 and December 31, 2013 (100,000,000 shares authorized)
46,605 
24,156 
Additional paid-in capital
309,950,440 
173,441,019 
Accumulated retained earnings (deficit)
1,580,062 
Accumulated other comprehensive income
453,302 
777,403 
Total CorEnergy Equity
310,450,347 
177,193,340 
Non-controlling Interest
27,090,695 
28,348,030 
Total Equity
337,541,042 
205,541,370 
Total Liabilities and Equity
$ 443,815,842 
$ 283,875,659 
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2014
Dec. 31, 2013
Statement of Financial Position [Abstract]
 
 
Accumulated depreciation, leased property
$ 19,417,025 
$ 9,154,337 
Accumulated deprecation, leased property held for sale
5,878,933 
3,600,251 
Accumulated depreciation, property and equipment
2,623,020 
2,037,685 
Accumulated amortization, intangible lease asset
1,021,784 
729,847 
Accumulated amortization, deferred debt
1,124,655 
572,830 
Accumulated amortization, deferred lease
$ 124,641 
$ 63,272 
Warrants, par value
$ 0 
$ 0 
Warrants, issued
945,594 
945,594 
Warrants, outstanding
945,594 
945,594 
Warrants, authorized
5,000,000 
5,000,000 
Capital stock non-convertible, par value
$ 0.001 
$ 0.001 
Capital stock non-convertible, shares issued
46,605,055 
24,156,163 
Capital stock non-convertible, shares outstanding
46,605,055 
24,156,163 
Capital stock non-convertible, shares authorized
100,000,000 
100,000,000 
Consolidated Statements of Income and Comprehensive Income (USD $)
1 Months Ended 12 Months Ended
Dec. 31, 2012
Dec. 31, 2014
Dec. 31, 2013
Nov. 30, 2012
Revenue
 
 
 
 
Lease revenue
$ 857,909 
$ 28,223,765 
$ 22,552,976 
$ 2,552,975 
Sales revenue
868,992 
9,708,902 
8,733,044 
8,021,022 
Financing revenue
1,077,813 
Transportation revenue
1,298,093 
Total Revenue
1,726,901 
40,308,573 
31,286,020 
10,573,997 
Expenses
 
 
 
 
Cost of sales (excluding depreciation expense)
686,976 
7,291,968 
6,734,665 
6,078,102 
Management fees, net of expense reimbursements
155,242 
3,467,660 
2,637,265 
1,046,796 
Asset acquisition expense
64,733 
929,188 
806,083 
377,834 
Professional fees
333,686 
2,214,028 
1,678,137 
1,141,045 
Depreciation expense
499,357 
13,133,886 
11,429,980 
1,118,269 
Transportation, maintenance and general and administrative
458,872 
Amortization expense
1,967 
61,369 
61,305 
Operating expenses
48,461 
840,910 
924,571 
739,519 
Directors’ fees
8,500 
270,349 
178,196 
85,050 
Other expenses
27,500 
991,528 
580,183 
231,086 
Total Expenses
1,826,422 
29,659,758 
25,030,385 
10,817,701 
Operating Income (Loss)
(99,521)
10,648,815 
6,255,635 
(243,704)
Other Income (Expense)
 
 
 
 
Net distributions and dividend income
2,325 
1,836,783 
584,814 
(279,395)
Net realized and unrealized gain (loss) on trading securities
(1,769,058)
(251,213)
4,009,933 
Net realized and unrealized gain (loss) on other equity securities
(159,495)
(466,026)
5,617,766 
16,171,944 
Interest income (expense)
(416,137)
(3,675,122)
(3,288,378)
(81,123)
Total Other Income (Expense)
(2,342,365)
(2,304,365)
2,662,989 
19,821,359 
Income (Loss) before income taxes
(2,441,886)
8,344,450 
8,918,624 
19,577,655 
Taxes
 
 
 
 
Current tax expense
3,855,947 
3,843,937 
13,474 
29,265 
Deferred tax expense (benefit)
(4,776,090)
(4,069,500)
2,936,044 
7,199,669 
Income tax expense (benefit), net
(920,143)
(225,563)
2,949,518 
7,228,934 
Net Income (Loss)
(1,521,743)
8,570,013 
5,969,106 
12,348,721 
Less: Net Income (Loss) attributable to non-controlling interest
(18,347)
1,556,157 
1,466,767 
Net Income (Loss) attributable to CORR Stockholders
(1,503,396)
7,013,856 
4,502,339 
12,348,721 
Other comprehensive income:
 
 
 
 
Changes in fair value of qualifying hedges attributable to CORR Stockholders
 
777,403 
Changes in fair value of qualifying hedges attributable to non-controlling interest
 
181,762 
Net Change in Other Comprehensive Income
(399,881)
959,165 
Total Comprehensive Income (Loss)
(1,521,743)
8,170,132 
6,928,271 
12,348,721 
Less: Comprehensive income attributable to non-controlling interest
(18,347)
1,480,377 
1,648,529 
Comprehensive Income (Loss) attributable to CORR Stockholders
$ (1,503,396)
$ 6,689,755 
$ 5,279,742 
$ 12,348,721 
Earnings (Loss) Per Common Share:
 
 
 
 
Basic and Diluted (in dollars per share)
$ (0.10)
$ 0.21 
$ 0.19 
$ 1.34 
Weighted Average Shares of Common Stock Outstanding:
 
 
 
 
Basic and Diluted (in dollars per share)
15,564,861 
33,028,574 
24,149,396 
9,182,425 
Dividends declared per share (in dollars per share)
$ 0.000 
$ 0.514 
$ 0.375 
$ 0.440 
Consolidated Statements of Equity (USD $)
Total
Capital Stock [Member]
Warrants [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Retained Earnings (Accumulated Deficit) [Member]
Non-Controlling Interest [Member]
Beginning balance at Nov. 30, 2011
$ 90,426,313 
$ 9,177 
$ 1,370,700 
$ 95,682,738 
 
$ (6,636,302)
 
Beginning balance, shares at Nov. 30, 2011
 
9,176,889 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Net Income (Loss)
12,348,721 
 
 
 
 
12,348,721 
 
Changes in fair value of qualifying hedges attributable to CORR Stockholders
 
 
 
 
 
 
Less: Net Income (Loss) attributable to non-controlling interest
 
 
 
 
 
 
Other Comprehensive Income (Loss), Net of Tax
 
 
 
 
 
 
Changes in fair value of qualifying hedges attributable to non-controlling interest
 
 
 
 
 
 
Distributions to stockholders sourced as return of capital
(4,040,273)
 
 
(4,040,273)
 
 
 
Reinvestment of distributions to stockholders, shares
 
13,778 
 
 
 
 
 
Reinvestment of distributions to stockholders
121,024 
14 
 
121,010 
 
 
 
Contributions from Noncontrolling Interests
 
 
 
 
 
 
Comprehensive Income (Loss) attributable to CORR Stockholders
12,348,721 
 
 
 
 
 
 
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest
12,348,721 
 
 
 
 
 
 
Net income attributable to CORR stockholders
12,348,721 
 
 
 
 
 
 
Reinvestment of distributions by common stockholders in additional common shares
(121,024)
 
 
 
 
 
 
Ending balance at Nov. 30, 2012
98,855,785 
9,191 
1,370,700 
91,763,475 
 
5,712,419 
 
Ending balance, shares at Nov. 30, 2012
 
9,190,667 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Net Income (Loss)
(1,521,743)
 
 
 
 
(1,503,396)
 
Non-controlling interest contribution
30,000,000 
 
 
 
 
 
30,000,000 
Changes in fair value of qualifying hedges attributable to CORR Stockholders
 
 
 
 
 
 
Less: Net Income (Loss) attributable to non-controlling interest
18,347 
 
 
 
 
 
(18,347)
Shares issued during period
 
14,950,000 
 
 
 
 
 
Net offering proceeds
83,508,150 
14,950 
 
83,493,200 
 
 
 
Other Comprehensive Income (Loss), Net of Tax
 
 
 
 
 
 
Changes in fair value of qualifying hedges attributable to non-controlling interest
 
 
 
 
 
 
Contributions from Noncontrolling Interests
(30,000,000)
 
 
 
 
 
 
Comprehensive Income (Loss) attributable to CORR Stockholders
(1,503,396)
 
 
 
 
 
 
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest
(1,521,743)
 
 
 
 
 
 
Net income attributable to CORR stockholders
(1,503,396)
 
 
 
 
 
 
Reinvestment of distributions by common stockholders in additional common shares
 
 
 
 
 
 
Ending balance at Dec. 31, 2012
210,842,192 
24,141 
1,370,700 
175,256,675 
 
4,209,023 
29,981,653 
Ending balance, shares at Dec. 31, 2012
 
24,140,667 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Net Income (Loss)
5,969,106 
 
 
 
 
4,502,339 
 
Changes in fair value of qualifying hedges attributable to CORR Stockholders
777,403 
 
 
 
 
 
 
Less: Net Income (Loss) attributable to non-controlling interest
(1,466,767)
 
 
 
 
 
1,466,767 
Other Comprehensive Income (Loss), Net of Tax
959,165 
 
 
 
777,403 
 
 
Changes in fair value of qualifying hedges attributable to non-controlling interest
181,762 
 
 
 
 
 
181,762 
Distributions to stockholders sourced as return of capital
(9,055,060)
 
 
(1,923,760)
 
(7,131,300)
 
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders
(3,282,152)
 
 
 
 
 
(3,282,152)
Reinvestment of distributions to stockholders, shares
 
15,496 
 
 
 
 
 
Reinvestment of distributions to stockholders
108,119 
15 
 
108,104 
 
 
 
Contributions from Noncontrolling Interests
 
 
 
 
 
 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax
959,165 
 
 
 
 
 
 
Comprehensive Income (Loss) attributable to CORR Stockholders
5,279,742 
 
 
 
 
 
 
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest
6,928,271 
 
 
 
777,403 
 
1,648,529 
Net income attributable to CORR stockholders
4,502,339 
 
 
 
 
4,502,339 
 
Reinvestment of distributions by common stockholders in additional common shares
(108,119)
 
 
 
 
 
 
Capital stock, non-convertible, $0.001 par value; 46,605,055 and 24,156,163 shares issued and outstanding at December 31, 2014 and December 31, 2013 (100,000,000 shares authorized)
24,156 
 
 
 
 
 
 
Warrants, no par value; 0 and 945,594 issued and outstanding at December 31, 2014 and December 31, 2013 (5,000,000 authorized)
1,370,700 
 
 
 
 
 
 
Additional paid-in capital
173,441,019 
 
 
 
 
 
 
Accumulated other comprehensive income
777,403 
 
 
 
 
 
 
Accumulated retained earnings (deficit)
1,580,062 
 
 
 
 
 
 
Non-controlling Interest
28,348,030 
 
 
 
 
 
 
Ending balance at Dec. 31, 2013
205,541,370 
24,156 
1,370,700 
173,441,019 
 
1,580,062 
28,348,030 
Ending balance, shares at Dec. 31, 2013
24,156,163 
24,156,163 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Net Income (Loss)
8,570,013 
 
 
 
 
 
 
Less: Net Income (Loss) attributable to non-controlling interest
(1,556,157)
 
 
 
 
 
 
Shares issued during period
 
22,425,000 
 
 
 
 
 
Net offering proceeds
141,725,228 
22,425 
 
141,702,803 
 
 
 
Other Comprehensive Income (Loss), Net of Tax
(399,881)
 
 
 
 
 
 
Changes in fair value of qualifying hedges attributable to non-controlling interest
 
 
 
 
 
 
(75,780)
Distributions to stockholders sourced as return of capital
(15,328,084)
 
 
(6,734,166)
 
(8,593,918)
 
Stock Issued During Period, Shares, Other
 
4,027 
 
 
 
 
 
Stock Issued During Period, Value, Other
30,000 
 
29,996 
 
 
 
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders
(2,737,712)
 
 
 
 
 
(2,737,712)
Reinvestment of distributions to stockholders, shares
 
19,865 
 
 
 
 
 
Reinvestment of distributions to stockholders
 
20 
 
140,088 
 
 
 
Contributions from Noncontrolling Interests
 
 
 
 
 
 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax
(399,881)
 
 
 
 
 
 
Comprehensive Income (Loss) attributable to CORR Stockholders
6,689,755 
 
 
 
 
 
 
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest
8,170,132 
 
 
 
(324,101)
7,013,856 
1,480,377 
Net income attributable to CORR stockholders
7,013,856 
 
 
 
 
 
 
Reinvestment of distributions by common stockholders in additional common shares
(140,108)
 
 
 
 
 
 
Adjustments to Additional Paid in Capital, Warrant Issued
 
 
(1,370,700)
1,370,700 
 
 
 
Capital stock, non-convertible, $0.001 par value; 46,605,055 and 24,156,163 shares issued and outstanding at December 31, 2014 and December 31, 2013 (100,000,000 shares authorized)
46,605 
 
 
 
 
 
 
Warrants, no par value; 0 and 945,594 issued and outstanding at December 31, 2014 and December 31, 2013 (5,000,000 authorized)
 
 
 
 
 
 
Additional paid-in capital
309,950,440 
 
 
 
 
 
 
Accumulated other comprehensive income
453,302 
 
 
 
 
 
 
Accumulated retained earnings (deficit)
 
 
 
 
 
 
Non-controlling Interest
27,090,695 
 
 
 
 
 
 
Ending balance at Dec. 31, 2014
$ 337,541,042 
 
 
 
 
 
 
Ending balance, shares at Dec. 31, 2014
46,605,055 
46,605,055 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
1 Months Ended 12 Months Ended
Dec. 31, 2012
Dec. 31, 2014
Dec. 31, 2013
Nov. 30, 2012
Statement of Cash Flows [Abstract]
 
 
 
 
Net Income (Loss)
$ (1,521,743)
$ 8,570,013 
$ 5,969,106 
$ 12,348,721 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Deferred income tax, net
(4,776,090)
(4,069,500)
2,936,044 
7,199,669 
Depreciation
499,357 
13,133,886 
11,429,980 
1,118,269 
Amortization
42,645 
1,155,131 
909,724 
200,056 
Realized and unrealized (gain) loss on trading securities
1,769,058 
251,213 
(4,009,933)
Realized and unrealized (gain) loss on other equity securities
159,495 
(1,357,496)
(5,617,766)
(16,171,944)
Distributions received from investment securities
316,756 
(70,720)
(11,095)
Distributions received from investment securities
960,384 
(567,276)
4,985,370 
Changes in assets and liabilities:
 
 
 
 
(Increase) decrease in accounts receivable
647,363 
(178,100)
(1,145,299)
(167,302)
(Increase) decrease in lease receivable
(788,567)
(711,229)
474,152 
(Increase) decrease in prepaid expenses and other assets
(177,521)
96,743 
272,194 
(233,272)
Increase (decrease) in management fee payable
(109,780)
468,961 
555,892 
5,403 
Increase (decrease) in accounts payable and other accrued liabilities
232,225 
(2,276,773)
260,538 
1,528,541 
Increase (decrease) in current income tax liability
3,922,682 
583,361 
(4,690,329)
Increase (decrease) in unearned revenue
(237,077)
711,230 
(2,133,685)
2,370,762 
Net cash provided by operating activities
767,370 
16,938,553 
7,708,012 
9,648,492 
Investing Activities
 
 
 
 
Proceeds from sale of long-term investment of trading and other equity securities
26,085,740 
10,806,879 
5,580,985 
9,983,169 
Deferred lease costs
(796,649)
(74,037)
Acquisition expenditures
(205,706,823)
(168,204,309)
(1,834,036)
(942,707)
Purchases of property and equipment
(421)
(11,970)
(40,670)
(30,321)
Proceeds from sale of property and equipment
948 
5,201 
3,076 
Issuance of financing notes receivable
(20,648,714)
Return of capital on distributions received
981,373 
1,772,776 
Net cash provided by (used in) investing activities
(180,418,153)
(177,075,793)
5,410,219 
9,013,217 
Financing Activities
 
 
 
 
Payments on lease obligation
(6,824)
(20,698)
(80,028)
Debt financing costs
(1,391,846)
(3,269,429)
(144,798)
(1,054,302)
Net offering proceeds
84,516,780 
141,797,913 
(523,094)
Debt issuance
70,000,000 
Proceeds from non-controlling interest
30,000,000 
Common stock issued under directors compensation plan
30,000 
Dividends paid
(15,187,976)
(8,946,941)
(3,919,249)
Distributions to non-controlling interest
(2,737,712)
(3,282,152)
Advances on revolving line of credit
530,000 
34,676,948 
221,332 
5,285,000 
Advances on revolving line of credit
(650,000)
(2,617,606)
(139,397)
(5,165,000)
Principal payment on credit facility
(2,940,000)
(2,188,000)
Net cash provided by (used in) financing activities
182,998,110 
149,752,138 
(12,835,748)
(7,121,579)
Net Change in Cash and Cash Equivalents
3,347,327 
(10,385,102)
282,483 
11,540,130 
Cash and Cash Equivalents at beginning of period
14,333,456 
17,963,266 
17,680,783 
2,793,326 
Cash and Cash Equivalents at end of period
17,680,783 
7,578,164 
17,963,266 
14,333,456 
Supplemental Disclosure of Cash Flow Information
 
 
 
 
Interest paid
2,765 
2,762,903 
2,651,355 
203,611 
Income taxes paid (net of refunds)
3,260,576 
4,637,068 
96,000 
Non-Cash Investing Activities
 
 
 
 
Leased property
205,706,823 
48,578,082 
(1,834,036)
(942,707)
Security proceeds from sale in long-term investment of other equity securities
23,046,215 
26,565,400 
Reclassification of prepaid expenses and other assets to deferred lease costs
753,940 
Reclassification of prepaid expenses and other assets to acquisition expenditures
181,766 
Change in accounts payable and accrued expenses related to deferred lease costs
(653,747)
(68,417)
Change in accounts payable and accrued expenses related to acquisition expenditures
1,624,680 
270,615 
(1,545,163)
Change in accounts payable and accrued expenses related to issuance of financing and other notes receivable
39,248 
Acquisitions, net of cash acquired:
 
 
 
 
Property and equipment
(120,083,133)
Other equity securities
(97,500)
Accounts receivable
(1,357,905)
Prepaid expenses and other assets
(150,485)
Accounts payable
3,781,664 
Goodwill
(1,718,868)
Total acquisitions, net of cash acquired
205,706,823 
168,204,309 
(1,834,036)
(942,707)
Non-Cash Financing Activities
 
 
 
 
Reclassification of prepaid expenses and other assets to issuance of equity
617,308 
Reclassification of prepaid expenses and other assets to debt financing costs
436,994 
Change in accounts payable and accrued expenses related to the issuance of equity
391,322 
72,685 
(523,094)
Change in accounts payable and accrued expenses related to debt financing costs
(291,667)
(176,961)
116,383 
Reinvestment of distributions by common stockholders in additional common shares
$ 0 
$ 140,108 
$ 108,119 
$ 121,024 
Introduction and Basis of Presentation
INTRODUCTION AND BASIS OF PRESENTATION
INTRODUCTION AND BASIS OF PRESENTATION
Introduction
CorEnergy Infrastructure Trust, Inc. ("CorEnergy"), was organized as a Maryland corporation and commenced operations on December 8, 2005. The Company's shares are listed on the New York Stock Exchange under the symbol “CORR.” As used in this report, the terms "we", "us", "our" and the "Company" refer to CorEnergy and its subsidiaries.
We are primarily focused on acquiring and financing midstream and downstream real estate assets within the U.S. energy infrastructure sector and concurrently entering into long-term triple-net participating leases with energy companies. We 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 sources such as corporate borrowing, bond offerings, or equity offerings. Many of our 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.
Taxable REIT subsidiaries hold our securities portfolio, operating businesses and certain financing notes receivable as follows:
Corridor Public Holdings, Inc. and its wholly-owned subsidiary Corridor Private Holdings, Inc ("CorPrivate"), hold our securities portfolio.
Mowood Corridor, Inc. and its wholly-owned subsidiary, Mowood, LLC ("Mowood"), which is the holding company for one of our operating companies, Omega Pipeline Company, LLC (“Omega”).
Corridor MoGas, Inc. ("CorMoGas") holds two other operating companies, MoGas Pipeline, LLC ("MoGas") and United Property Systems, LLC ("UPS").
CorEnergy BBWS, Inc. ("BBWS"), CorPrivate and Corridor Leeds Path West, Inc. ("Leeds Path West") hold financing notes receivable.
Change in Fiscal Year End
On February 5, 2013, the Board of Directors of the Company approved a change in the Company's fiscal year end from November 30 to December 31. This change to the calendar year reporting cycle began January 1, 2013. As a result of the change, the Company reported a December 2012 fiscal month transition period, which was reported in the Quarterly Report on Form 10-Q for the calendar quarter ended March 31, 2013 and is included in this Annual Report on Form 10-K for the calendar year ending December 31, 2014.
Financial information for the year ended December 31, 2012 has not been included in this Form 10-K for the following reasons: (i) the year ended November 30, 2012 provides as meaningful a comparison to the years ended December 31, 2013 and 2014 as would the year ended December 31, 2012; (ii) there are no significant factors, seasonal or other, that would impact the comparability of information if the results for the year ended December 31, 2012 was presented in lieu of results for the year ended November 30, 2012; and (iii) it was not practicable or cost justified to prepare this information.
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) set forth in the ASC, as published by the FASB, and with the Securities and Exchange Commission (“SEC”) instructions to Form 10-K. 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 our net earnings are reduced by the portion of net earnings attributable to noncontrolling interests.
The Company consolidates certain entities when it is deemed to be the primary beneficiary in a variable interest entity ("VIE"), as defined in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic on Consolidation. The Topic on Consolidation requires the consolidation of VIEs in which an enterprise has a controlling financial interest. The equity method of accounting is applied to entities in which the Company is not the primary beneficiary as defined in the Consolidation Topic of FASB ASC, or does not have effective control, but can exercise influence over the entity with respect to its operations and major decisions. This topic requires an ongoing reassessment.
Significant Accounting Policies
SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES
A. Use of Estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, recognition of distribution income and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates.
B. Leased Property – The Company includes assets subject to lease arrangements within Leased property, net of accumulated depreciation, in the Consolidated Balance Sheets. Lease payments received are reflected in Lease revenue on the Consolidated Statements of Income, net of amortization of any off-market adjustments. Costs in connection with the creation and execution of a lease are capitalized and amortized over the lease term. See Note 4 for further discussion.
C. Cash and Cash Equivalents – The Company maintains cash balances at financial institutions in amounts that regularly exceed FDIC insured limits. The Company’s cash equivalents are comprised of short-term, liquid money market instruments.
D. Long-Lived Assets – Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the asset. Expenditures for repairs and maintenance are charged to operations as incurred, and improvements, which extend the useful lives of assets, are capitalized and depreciated over the remaining estimated useful life of the asset.
The Company initially records long-lived assets at their purchase price plus any direct acquisition costs, unless the transaction is accounted for as a business combination. If the transaction is accounted for as a business combination, the Company allocates the purchase price to the acquired tangible and intangible assets and liabilities based on their estimated fair values. See Note 5 for further information.
E. Intangibles and Goodwill – The Company may acquire long-lived assets that are subject to an existing lease contract with the seller or other lessee party and the Company may assume outstanding debt of the seller as part of the consideration paid. If, at the time of acquisition, the existing lease or debt contract is not at current market terms, the Company will record an asset or liability at the time of acquisition representing the amount by which the fair value of the lease or debt contract differs from its contractual value. Such amount is then amortized over the remaining contract term as an adjustment to the related lease revenue or interest expense.
The Company periodically reviews its long-lived assets, primarily real estate and goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company’s review involves comparing current and future operating performance of the assets, the most significant of which is undiscounted operating cash flows, to the carrying value of the assets. Based on this analysis, a provision for possible loss is recognized, if any.
In connection with the MoGas transaction, the Company recorded approximately $1.7 million in goodwill. Goodwill represents the excess of the purchase price paid over the estimated fair value of the net assets acquired. Refer Note 5 for further details of the acquisition. The company will review goodwill for impairment at least annually or whenever events or circumstances indicate the carrying value of an asset may not be recoverable. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss would be recognized for the amount of the excess.
No impairment write-downs were recognized during the years ended December 31, 2014, December 31, 2013 or November 30, 2012, or for the one-month transition period ended December 31, 2012
F. Investment Securities – The Company’s investments in securities are classified as either trading or other equity securities:
Trading securities – The Company’s publicly traded equity securities were classified as trading securities and were historically reported at fair value. The Company liquidated its trading securities in order to acquire real asset investments. As of March 31, 2013, all trading securities had been sold.
Other equity securities – The Company’s other equity securities represent interests in private companies which the Company has elected to report at fair value under the fair value option.
Realized and unrealized gains and losses on trading securities and other equity securities – Changes in the fair values of the Company’s securities during the period reported and the gains or losses realized upon sale of securities during the period are reflected as other income or expense within the accompanying Consolidated Statements of Income.
G. Security Transactions and Fair Value – Security transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses are reported on an identified cost basis.
For equity securities that are freely tradable and listed on a securities exchange or over-the-counter market, the Company values those securities at their last sale price on that exchange or over-the-counter market on the valuation date. If the security is listed on more than one exchange, the Company will use the price from the exchange that it considers to be the principal, which may not necessarily represent the last sale price. If there has been no sale on such exchange or over-the-counter market on such day, the security will be valued at the mean between the last bid price and last ask price on such day.
The Company also holds investments in illiquid securities including debt and equity securities of privately-held companies. These investments generally are subject to restrictions on resale, have no established trading market and are valued on a quarterly basis. Because of the inherent uncertainty of valuation, the fair values of such investments, which are determined in accordance with procedures approved by the Company’s Board of Directors, may differ materially from the values that would have been used had a ready market existed for the investments.
The Company determines fair value to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has determined the principal market, or the market in which the Company exits its private portfolio investments with the greatest volume and level of activity, to be the private secondary market. Typically, private companies are bought and sold based on multiples of EBITDA, cash flows, net income, revenues, or in limited cases, book value.
For private company investments, value is often realized through a liquidity event. Therefore, the value of the company as a whole (enterprise value) at the reporting date often provides the best evidence of the value of the investment and is the initial step for valuing the Company’s privately issued securities. For any one company, enterprise value may best be expressed as a range of fair values, from which a single estimate of fair value will be derived. In determining the enterprise value of a portfolio company, an analysis is prepared consisting of traditional valuation methodologies including market and income approaches. The Company considers some or all of the traditional valuation methods based on the individual circumstances of the portfolio company in order to derive its estimate of enterprise value.
The fair value of investments in private portfolio companies is determined based on various factors, including enterprise value, observable market transactions, such as recent offers to purchase a company, recent transactions involving the purchase or sale of the equity securities of the company, or other liquidation events. The determined equity values may be discounted when the Company has a minority position, or is subject to restrictions on resale, has specific concerns about the receptivity of the capital markets to a specific company at a certain time, or other comparable factors exist.
The Company undertakes a multi-step valuation process each quarter in connection with determining the fair value of private investments. We have retained an independent valuation firm to provide third party valuation consulting services based on procedures that the Company has identified and may ask them to perform from time to time on all or a selection of private investments as determined by the Company.  The multi-step valuation process is specific to the level of assurance that the Company requests from the independent valuation firm. For positive assurance, the process is as follows:
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.
H. 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 fees. As of December 31, 2014 and 2013 , approximately $85 thousand and $0, respectively, of net deferred debt costs and fees are included in the accompanying Consolidated Balance Sheets. The deferred costs and fees are amortized over the life of the loans. For the years ended December 31, 2014, December 31, 2013, November 30, 2012, and the one-month transition period ended December 31, 2012, $1 thousand, $0, $0, and $0, respectively, is included in Financing Revenue within the Consolidated Statements of Income.
The Company reviews its financing notes receivable to determine if the balances are realizable based on factors affecting the collectibility of those balances.  Factors may include credit quality, timeliness of required periodic payments, past due status and management discussions with obligors.  The Company believes that its financing notes receivable balance is fully collectible as of December 31, 2014. At December 31, 2014 the Company determined that an allowance for financing notes receivable was not necessary. The financing notes receivable are discussed more fully in Note 6.
I. Lease Receivable – Lease receivables are determined according to the terms of the lease agreements entered into by the Company and its lessees, as discussed within Note 4. Lease payments by our tenants, have remained timely and without lapse.
J. Accounts Receivable – Accounts receivable are presented at face value net of an allowance for doubtful accounts. Accounts are considered past due based on the terms of sale with the customers. The Company reviews accounts for collectibility based on an analysis of specific outstanding receivables, current economic conditions and past collection experience. At December 31, 2014 and 2013, the Company determined that an allowance for doubtful accounts was not necessary.
K. Derivative Instruments and Hedging Activities - FASB ASC 815, Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company's objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments. Accordingly, the Company's derivative assets and liabilities are presented on a gross basis.
As required by ASC 815, the Company records all derivatives on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
FASB ASC 820, Fair Value Measurements and Disclosure ("ASC 820"), defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In accordance with ASC 820, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
L. Fair Value Measurements - Various inputs are used in determining the fair value of the Company’s assets and liabilities. These inputs are summarized in the three broad levels listed below:
Level 1 – quoted prices in active markets for identical investments
Level 2 – other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.)
Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)
ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
M. Revenue Recognition – Specific recognition policies for the Company’s revenue items are as follows:
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 collectibility is reasonably assured. Contingent rent is recognized when it is earned. 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 assets within the Consolidated Balance Sheets.
Sales revenue – Revenues related to natural gas distribution and performance of management services are recognized in accordance with GAAP upon delivery of natural gas and upon the substantial performance of management and supervision services related to the expansion of the natural gas distribution system. Omega, acting as a principal, provides for transportation services and natural gas supply for its customers. In addition, Omega is paid fees for the operation and maintenance of its natural gas distribution system, including any necessary expansion of the distribution system. Omega is responsible for the coordination, supervision and quality of the expansions while actual construction is generally performed by third party contractors. Revenues from expansion efforts are recognized in accordance with GAAP using either a completed contract or percentage of completion method based on the level and volume of estimates utilized, as well as the certainty or uncertainty of our ability to collect those revenues.
Transportation revenue – MoGas generates revenue from natural gas transportation and recognizes that revenue on firm contracted capacity over the contract period regardless of the amount of natural gas that is transported. 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 by both parties.
Financing revenue – Our financing notes receivable are considered a core product offering and therefore the related income is presented as a component of operating income in the revenue section. 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 fees 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.
N. Cost of Sales – Included in the Company’s cost of sales are the amounts paid for gas and propane, along with related transportation, which are delivered to customers, as well as, the cost of material and labor related to the expansion of the Omega natural gas distribution system.
O. Transportation, maintenance and general and administrative – These expenses are incurred both internally and externally. The internal expenses relate to system control, pipeline operations, maintenance, insurance and taxes. Other internal expenses include payroll cost for employees associated with gas control, field employees, the office manager and the vice presidents of operations and finance. The external costs consist of professional services such as audit and accounting, legal and regulatory and engineering.
P. Asset Acquisition Expenses – Costs incurred in connection with the research of real property acquisitions not expected to be accounted for as business combinations are expensed until it is determined that the acquisition of the real property is probable. Upon such determination, costs incurred in connection with the acquisition of the property are capitalized as described in paragraph (D) above. Deferred costs related to an acquisition that we have determined, based on our judgment, not to pursue are expensed in the period in which such determination is made.
Q. Offering Costs – Offering costs related to the issuance of common stock are charged to additional paid-in capital when the stock is issued.
R. Debt Issuance Costs – Costs incurred for the issuance of new debt are capitalized and amortized over the debt term. See Note 14 for further discussion.
S. Distributions to Stockholders – Distributions to stockholders are determined by the Board of Directors and are recorded on the ex-dividend date.
T. Other Income Recognition Specific policies for the Company’s other income items are as follows:
Securities Transactions and Investment Income Recognition – Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses are reported on an identified cost basis. Distributions received from our equity investments are generally comprised of ordinary income, capital gains and distributions received from investment securities from the portfolio company. 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 each portfolio company and other industry sources. These estimates may subsequently be revised based on information received from the portfolio companies after their tax reporting periods are concluded, as the actual character of these distributions are not known until after our fiscal year end.
Subsequent to November 30, 2012, the Company reallocated the amount of 2012 income and return of capital it recognized for the period December 1, 2011 to November 30, 2012 based on the 2012 tax reporting information received from the individual portfolio companies. This reclassification amounted to an increase in net distributions and dividend income on securities of $567 thousand or $0.06 per share; a decrease in net realized and unrealized gains on trading and other equity securities of $567 thousand or $0.06 per share for the year ended November 30, 2012. This reclassification had no impact on net income.
Subsequent to December 31, 2013, the Company reallocated the amount of 2013 income and return of capital it recognized for the period January 1, 2013 to December 31, 2013 based on the 2013 tax reporting information received from the individual portfolio companies. This reclassification amounted to an increase in net distributions and dividend income on securities of $863 thousand or $0.04 per share; a decrease in net realized and unrealized gains on other equity securities of $863 thousand or $0.04 per share for the year ended December 31, 2013. This reclassification had no impact on net income.
Dividends and distributions from investments – Dividends and distributions 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.
U. Federal and State Income Taxation – In 2013 we qualified, and in March 2014 elected (effective as of January 1, 2013), to be treated as a REIT for federal income tax purposes. Because certain of our assets may not produce REIT-qualifying income or be treated as interests in real property, those assets are held in wholly-owned Taxable REIT Subsidiaries ("TRSs") in order to limit the potential that such assets and income could prevent us from qualifying as a REIT.
For years ended in 2012 and before, the distributions we made to our stockholders from our earnings and profits were treated as qualified dividend income ("QDI") and return of capital. QDI is taxed to our individual shareholders at the maximum rate for long-term capital gains, which through tax year 2012 was 15 percent and beginning in tax year 2013 will be 20 percent. The Company has elected to be taxed as a REIT for 2013 rather than a C corporation and generally will not pay federal income tax on taxable income of the REIT that is distributed to our stockholders. As a REIT, our distributions from earnings and profits will be treated as ordinary income and a return of capital, and generally will not qualify as QDI. To the extent that the REIT had accumulated C corporation earnings and profits from the periods prior to 2013, we distributed such earnings and profits in 2013. A portion of our normal distributions in 2013 have been characterized for federal income tax purposes as a distribution of those earnings and profits from non-REIT years and have been treated as QDI. In addition, to the extent we receive taxable distributions from our TRSs, or the REIT received distributions of C corporation earnings and profits, such portion of our distribution will be treated as QDI.
As a REIT, the Company holds and operates certain of our assets through one or more wholly-owned TRSs. Our use of TRSs enables us to continue to engage in certain businesses while complying with REIT qualification requirements and also allows us to retain income generated by these businesses for reinvestment without the requirement of distributing those earnings. In the future, we may elect to reorganize and transfer certain assets or operations from our TRSs to the Company or other subsidiaries, including qualified REIT subsidiaries.
The Company's trading securities and other equity securities are limited partnerships or limited liability companies which are treated as partnerships for federal and state income tax purposes. As a limited partner, the Company reports its allocable share of taxable income in computing its own taxable income. To the extent held by a TRS, the TRS's tax expense or benefit is included in the Consolidated Statements of Income based on the component of income or gains and losses to which such expense or benefit relates. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.
If we cease to qualify as a REIT, the Company, as a C corporation, would be obligated to pay federal and state income tax on its taxable income. Currently, the highest regular marginal federal income tax rate for a corporation is 35 percent. The Company may be subject to a 20 percent federal alternative minimum tax on its federal alternative minimum taxable income to the extent that its alternative minimum tax exceeds its regular federal income tax.
V. Recent Accounting Pronouncements – In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”) that will require management to evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statements are issued on both an interim and annual basis. Management will be required to provide certain footnote disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern. ASU No. 2014-15 becomes effective for annual periods beginning in 2016 and for interim reporting periods starting in the first quarter of 2017. The Company does not expect the adoption of this amendment to have a material impact on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09 "Revenue from Contracts with Customers." ASU No. 2014-09 adds to the FASB ASC by detailing new guidance in order to make a more clarified set of principles for recognizing revenue from customer contracts. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Management is still in the process of evaluating this amendment and has not selected a transition method, however, does not expect adoption to have a material impact on the Company's consolidated financial statements.

In April 2014, the FASB issued ASU 2014-08 "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." Under this guidance, only disposals representing a strategic shift in operations would be presented as discontinued operations. This guidance requires expanded disclosure that provides information about the assets, liabilities, income and expenses of discontinued operations. Additionally, the guidance requires additional disclosure for a disposal of a significant part of an entity that does not qualify for discontinued operations reporting. This guidance will be effective for reporting periods beginning on or after December 15, 2014 with early adoption permitted for disposals or classifications of assets as held-for-sale that have not been reported in financial statements previously issued or available for issuance. It is expected that fewer disposal transactions will meet the new criteria to be reported as discontinued operations. The Company has elected early adoption of the standard and the effects of applying the revised guidance did not have a material effect on the consolidated financial statements and related disclosures. Refer to the Consolidated Balance Sheets and Note 3 for further information.
In July 2013, the FASB issued ASU No. 2013-11 "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." ASU No. 2013-11 amends FASB ASC Topic 740 Income taxes, to include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU No. 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Management has adopted this amendment and it did not have a material impact on the Company's consolidated financial statements.

Leased Properties
LEASED PROPERTIES
LEASED PROPERTIES
Pinedale LGS
Our subsidiary, Pinedale Corridor, LP ("Pinedale LP"), owns a system of gathering, storage, and pipeline facilities (the "Liquids Gathering System" or "Pinedale LGS"), with associated real property rights in the Pinedale Anticline in Wyoming.
Physical Assets
The Pinedale LGS consists of more than 150 miles of pipelines with 107 receipt points and four above-ground central gathering facilities. The system is leased to and used by Ultra Petroleum Corp. ("Ultra Petroleum") as a method of separating water, condensate and associated flash gas from a unified stream and subsequently selling or treating and disposing of the separated products. Prior to entering the Pinedale LGS, a commingled hydrocarbon stream is separated into wellhead natural gas and a liquids stream. The wellhead natural gas is transported to market by a third party. The remaining liquids, primarily water, are transported by the Pinedale LGS to one of its four central gathering facilities where they pass through a three-phase separator which separates condensate, water and associated natural gas. Condensate is a valuable hydrocarbon commodity that is sold by Ultra Petroleum; water is transported to disposal wells or a treatment facility for re-use; and the natural gas is sold or otherwise used by Ultra Petroleum for fueling on-site operational equipment.
The asset is depreciated for book purposes over an estimated useful life of 26 years. The amount of depreciation recognized for the leased property for the years ended December 31, 2014, December 31, 2013 and November 30, 2012, and for the one-month transition period ended December 31, 2012 was $8.9 million, $8.9 million, $0, and $286 thousand, respectively.
See Note 4 for further information regarding the Pinedale Lease Agreement (as defined therein).
Non-Controlling Interest Partner
Prudential Financial, Inc. ("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, holds the remaining 81.05 percent of the economic interest.
Debt
Pinedale LP borrowed $70 million pursuant to a secured term credit facility with KeyBank National Association ("KeyBank") serving as a lender and the administrative agent on behalf of other lenders participating in the credit facility. The credit facility will remain in effect through December 2015, with an option to extend through December 2016. The credit facility is secured by the Pinedale LGS. See Note 14 for further information regarding the credit facility.
Portland Terminal Facility
On January 21, 2014, we completed a follow-on equity offering of 7,475,000 shares of common stock, raising approximately $49 million in gross proceeds at $6.50 per share (net proceeds of approximately $46 million after underwriters’ discount). Concurrently, our subsidiary, LCP Oregon, used the net proceeds from the offering to close on a Purchase and Sale Agreement to acquire a petroleum products terminal facility and certain associated real property rights located in Portland, Oregon ("Portland Terminal Facility") for $40 million in cash. LCP Oregon also entered into a long-term triple-net Lease Agreement relating to the use of the Portland Terminal Facility (the “Portland Lease Agreement”) with Arc Terminals Holdings LLC ("Arc Terminals"), an indirect wholly-owned subsidiary of Arc Logistics Partners LP ("Arc Logistics").
The Portland Terminal Facility is a rail and marine facility adjacent to the Willamette River in Portland, Oregon. The 39-acre site has 84 tanks with a total storage capacity of approximately 1,500,000 barrels. The Portland Terminal Facility is capable of receiving, storing and delivering crude oil and refined petroleum products. Products are received and delivered via railroad or marine (up to Panamax size vessels). The marine facilities are accessed through a neighboring terminal facility via an owned pipeline. The Portland Terminal Facility offers heating systems, emulsions and an on-site product testing laboratory as ancillary services.
At the acquisition date we anticipated funding an additional $10 million of terminal-related improvement projects in support of Arc Terminals’ commercial strategy to optimize the Portland Terminal Facility and generate stable cash flows, including: i) upgrade a portion of the existing storage assets; ii) enhance existing terminal infrastructure; and iii) develop, design, engineer and construct throughput expansion opportunities. As of December 31, 2014, additional spending on terminal-related projects totaled approximately $6.0 million.
The asset is depreciated for book purposes over an estimated useful life of 30 years. The amount of depreciation recognized for the leased property for each of the years ended December 31, 2014, December 31, 2013, November 30, 2012, and for the one-month transition period ended December 31, 2012 was $1.4 million, $0, $0 and $0, respectively.
See Note 4 for further information regarding the Portland Lease Agreement related to the Portland Terminal Facility assets.
LEASED PROPERTY HELD FOR SALE
Eastern Interconnect Project (EIP)
Physical Assets
The EIP transmission assets are utilized by the lessee to move electricity across New Mexico between Albuquerque and Clovis. The physical assets include 216 miles of 345 kilovolt (unaudited) transmission lines, towers, easement rights, converters and other grid support components. Originally, the assets were depreciated for book purposes over an estimated useful life of 20 years. Pursuant to the Purchase Agreement discussed in Note 4, the Company reevaluated the residual value used to calculate its depreciation of the EIP, and determined that a change in estimate was necessary. The change in estimate resulted in higher depreciation expenses beginning in November of 2012 through the expiration of the lease in April 2015.
The amount of depreciation expense related to the EIP leased property for the years ended December 31, 2014, December 31, 2013 and November 30, 2012 and for the one-month transition period ended December 31, 2012 was $2.3 million, $2.3 million, $837 thousand and $190 thousand, respectively.
EIP Leased Property Held for Sale consists of the following:
EIP Leased Property Held for Sale
 
 
December 31, 2014
 
December 31, 2013
Leased asset
 
$
14,126,849

 
$
14,126,849

Less: accumulated depreciation
 
(5,878,933
)
 
(3,600,251
)
Net leased asset held for sale
 
$
8,247,916

 
$
10,526,598


See Note 4 for further information regarding the Purchase Agreement with PNM and the PNM Lease Agreement related to the EIP transmission assets.
Leases
LEASES
LEASES
As of December 31, 2014 the Company had three significant leases. The table below displays the impact of leases on total leased properties and total lease revenues for the periods presented.

 
As a Percentage of
 
 
Leased Properties
 
Lease Revenues

 
As of
December 31, 2014
 
As of
December 31, 2013
 
For the Year Ended December 31, 2014
 
For the Year Ended December 31, 2013
 
For the Year Ended November 30, 2012
 
For the One-Month Transition Period December 31, 2012
Pinedale LGS
 
79.17%
 
94.23%
 
71.94%
 
88.68%
 
 
75.20%
Portland Terminal Facility
 
17.24%
 
 
18.98%
 
 
 
Public Service of New Mexico
 
3.07%
 
5.77%
 
9.05%
 
11.32%
 
100.00%
 
24.80%


Pinedale LGS
Pinedale LP entered into a long-term triple-net Lease Agreement on December 20, 2012, relating to the use of the Pinedale LGS (the “Pinedale Lease Agreement”) with Ultra Wyoming LGS, LLC (“Ultra Wyoming”), another indirect wholly-owned subsidiary of Ultra Petroleum. Ultra Wyoming utilizes the Pinedale LGS to gather and transport a commingled stream of oil, natural gas and water, then further utilizes the Pinedale LGS to separate this stream into its separate components. Ultra Wyoming's obligations under the Pinedale Lease Agreement are guaranteed by Ultra Petroleum and Ultra Petroleum's operating subsidiary, Ultra Resources, Inc. (“Ultra Resources”), pursuant to the terms of a related parent guaranty. Annual rent for the initial term under the Pinedale Lease Agreement is a minimum of $20 million (as adjusted annually for changes based on the Consumer Price Index (“CPI”), subject to annual maximum adjustments of 2 percent), with the exact rental amount determined by the actual volume of the components handled by the Pinedale LGS, subject to Pinedale LP not being in default under the Pinedale Lease Agreement. For 2014, the increase in quarterly rent was $76 thousand, based on the CPI adjustment as specified in the lease terms. Total annual rent may not exceed $27.5 million.
As of December 31, 2014 and December 31, 2013, approximately $796 thousand and $857 thousand, respectively, of net deferred lease costs are included in the accompanying Consolidated Balance Sheets. The deferred costs are amortized over the 15 year life of the Pinedale LGS lease. For the years ended December 31, 2014, December 31, 2013, November 30, 2012, and the one-month transition period ended December 31, 2012, $61 thousand, $61 thousand, $0, and $2 thousand, respectively, is included in amortization expense within the Consolidated Statements of Income.

The assets, which comprise the Pinedale LGS, include real property and land rights to which the purchase consideration was allocated based on relative fair values and equaled $122.3 million and $105.7 million, respectively, at the time of acquisition.  The land rights are being depreciated over the 26 year life of the related land lease with associated depreciation expense expected to be approximately $4.1 million for each of the next five years.

In view of the fact that Ultra Petroleum leases a substantial portion of the Company's net leased property, which is a significant source of revenues and operating income, its financial condition and ability and willingness to satisfy its obligations under its lease with the Company are expected to have a considerable impact on the results of operation going forward.
Ultra Petroleum is currently subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. The audited financial statements and unaudited financial statements of Ultra Petroleum can be found on the SEC's website at www.sec.gov. The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of Ultra Petroleum, but has no reason not to believe the accuracy or completeness of such information. In addition, Ultra Petroleum 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. Summary Consolidated Balance Sheets and Consolidated Statements of Operations for Ultra Petroleum are provided below.
Ultra Petroleum Corp.
Summary Consolidated Balance Sheets
(in thousands)
 
December 31, 2014
 
December 31, 2013
 
 
 
 
Current assets
$
277,138

 
$
128,631

Non-current assets
3,948,552

 
2,656,688

Total Assets
$
4,225,690

 
$
2,785,319

 
 
 
 
Current liabilities
$
445,718

 
$
407,476

Non-current liabilities
3,568,312

 
2,709,333

Total Liabilities
$
4,014,030

 
$
3,116,809

 
 
 
 
Shareholder's equity (deficit)
211,660

 
(331,490
)
Total Liabilities and Shareholder's Equity
$
4,225,690

 
$
2,785,319

 
 
 
 

Ultra Petroleum Corp.
Summary Consolidated Statements of Operations
(in thousands)
 
For the Years Ended December 31,
 
2014
 
2013
Revenues
$
1,230,020

 
$
933,404

Expenses
670,431

 
561,138

Operating Income
559,589

 
372,266

Other Income (Expense), net
(22,562
)
 
(138,044
)
Income before income tax provision (benefit)
537,027

 
234,222

Income tax provision (benefit)
(5,824
)
 
(3,616
)
Net Income
$
542,851

 
$
237,838


Portland Terminal Facility
LCP Oregon entered into the Portland Lease Agreement on January 21, 2014. Arc Logistics has guaranteed the obligations of Arc Terminals under the Portland Lease Agreement. The Portland Lease Agreement grants Arc Terminals substantially all authority to operate the Portland Terminal Facility. During the initial term, Arc Terminals will make base monthly rental payments and variable rent payments based on the volume of liquid hydrocarbons that flowed through the Portland Terminal Facility in the prior month. The base rent in the initial year of the Portland Lease Agreement increased to approximately $418 thousand per month starting with August 2014 and each month thereafter. The base rent is also expected to increase during the initial year of the Portland Lease Agreement based on a percentage of specified construction costs at the Portland Terminal Facility incurred by LCP Oregon, estimated at inception to be $10 million (unaudited). Base rent increased to approximately $471 thousand per month as of December 31, 2014. In 2014, $241 thousand in incremental rent was received due to construction completed during the year. Variable rent is capped at 30 percent of total rent, which would be the equivalent of the Portland Terminal Facility’s expected throughput capacity.
Arc Logistics is a fee-based, growth-oriented Delaware limited partnership formed by Lightfoot to own, operate, develop and acquire a diversified portfolio of complementary energy logistics assets. In November 2013, Arc Logistics completed its initial public offering ("IPO"). Arc Logistics’ public disclosures filed with the SEC indicate that Arc Logistics is principally engaged in the terminaling, storage, throughput and transloading of crude oil and petroleum products with energy logistics assets strategically located in the East Coast, Gulf Coast and Midwest regions of the U.S. Arc Terminals is a wholly-owned subsidiary of Arc Logistics.
Arc Logistics is currently subject to the reporting requirements of the Exchange Act and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. The audited financial statements and unaudited financial statements of Arc Logistics can be found on the SEC's web site at www.sec.gov. The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of Arc Logistics but has no reason to doubt the accuracy or completeness of such information. In addition, Arc Logistics 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 Arc Logistics that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.
Lease of Property Held for Sale
Public Service Company of New Mexico ("PNM")
The EIP leased asset held for sale is leased on a triple net basis through April 1, 2015 (the "PNM Lease Agreement") to PNM, an independent electric utility company serving approximately 500 thousand customers (unaudited) in New Mexico. PNM is a subsidiary of PNM Resources Inc. (NYSE: PNM) ("PNM Resources").
At the time of acquisition, the rate of the PNM Lease Agreement was determined to be above market rates for similar leased assets and the Company recorded an intangible asset of $1.1 million for this premium which is being amortized as a reduction to lease revenue over the remaining lease term. See Note 13 below for further details of the intangible asset.
On November 1, 2012 the Company entered into a definitive Purchase Agreement with PNM to sell the Company’s 40 percent undivided interest in the EIP upon termination of the PNM Lease Agreement on April 1, 2015 for $7.68 million. Upon execution of the Agreement, the schedule of the lease payments under the PNM Lease Agreement was changed so that the last scheduled semi-annual lease payment was received by the Company on October 1, 2012. Additionally, PNM's remaining basic lease payments due to the Company were accelerated. The semi-annual payments of approximately $1.4 million that were originally scheduled to be paid on April 1, and October 1, 2013, were received by the Company on November 1, 2012. The three remaining lease payments due April 1, 2014, October 1, 2014 and April 1, 2015 were paid in full on January 2, 2014. For the years ended December 31, 2014 and 2013 and November 30, 2012, revenue of $2.6 million was included in lease revenue on the income statement. For the one-month transition period ended December 31, 2012, $213 thousand was included in lease revenue on the income statement.
PNM Resources is currently subject to the reporting requirements of the Exchange Act and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. The audited financial statements and unaudited financial statements of PNM Resources can be found on the SEC's web site at www.sec.gov. The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of PNM Resources but has no reason to doubt the accuracy or completeness of such information. In addition, PNM Resources 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 PNM Resources that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.
The future contracted minimum rental receipts for all net leases as of December 31, 2014 are as follows:
Future Minimum Lease Receipts
Years Ending December 31,
 
Amount
2015
 
$
26,342,843

2016
 
26,347,143

2017
 
26,347,143

2018
 
26,347,143

2019
 
26,451,645

Thereafter
 
223,510,092

Total
 
$
355,346,009

Mogas Acquisition
MOGAS ACQUISITION
MOGAS ACQUISITION

On November 24, 2014, our wholly owned taxable REIT subsidiary, Corridor MoGas, Inc. ("Corridor MoGas"), executed a Purchase Agreement (the “MoGas Purchase Agreement”) with Mogas Energy, LLC (“Seller”) to acquire all of the equity interests of two entities, MoGas Pipeline, LLC ("MoGas") and United Property Systems, LLC ("UPS") (collectively, the "MoGas Transaction"). MoGas is the owner and operator of an approximately 263 mile interstate natural gas pipeline system in and around St. Louis and extending into central Missouri. The Pipeline System, regulated by the Federal Energy Regulatory Commission ("FERC"), delivers natural gas to both investor-owned and municipal local distribution systems and has eight firm transportation customers. The Pipeline System receives natural gas at three receipt points and delivers that natural gas at 22 delivery points. UPS owns 10.28 acres of real property that includes office and storage space which is leased to MoGas. A portion of that land is also leased to an operator of a small cement plant owned by a third party. The combined purchase price of MoGas and UPS was $125 million, funded by a combination of equity proceeds and revolving credit facility, as further discussed in Note 14 to these Consolidated Financial Statements.

On November 17, 2014, the Company completed a follow-on equity offering of 14,950,000 shares of common stock, raising approximately $102 million in gross proceeds at $6.80 per share (net proceeds of approximately $96 million after underwriters' discount). Then on November 24, 2014, the Company borrowed $32 million (net proceeds of approximately $29 million after $3 million in fees). The total cash proceeds of $125 million were then used to capitalize Corridor MoGas, $90 million of which was in the form of a term note, who then concurrently used the cash to fund the purchase price to the Seller, $7 million of which, was placed in an indemnity escrow account. The Purchase Agreement describes the circumstances under which escrowed funds are to be released and the party to receive such released funds. Currently the Company has no reason to believe that any of the funds in escrow will be returned.

The Company is accounting for the acquisition under the acquisition method in accordance with ASC 805, Business Combinations (“ASC 805”), and the initial accounting for this business combination is substantially complete but subject to further adjustment as certain information becomes available. The Company's assessment of the fair values and the allocation of purchase price to the identified tangible and intangible assets is its current best estimate of fair value. However, this assessment is subject to change due to information not readily available at the acquisition date, reclassification adjustments for presentation and adjustments to our valuation assumptions. The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed, which the Company determined using Level 1, Level 2 and Level 3 inputs:

Acquisition Date Fair Values
 
Amount
Leased Property:
 
Land
$
210,000

Buildings and improvements
1,188,000

Total Leased Property
$
1,398,000

 
 
Property and Equipment:
 
Land
$
580,000

Depreciable property:
 
Natural Gas Pipeline
119,081,732

Vehicles and Trailers
378,000

Office Equipment
43,400

Total Property and Equipment
$
119,503,132

 
 
Goodwill
$
1,718,868

Cash and cash equivalents
4,098,274

Accounts receivable
1,357,905

Prepaid assets
125,485

Accounts payable and other accrued liabilities
(3,781,664
)
 
 
Net assets acquired
$
125,000,000



The fair values of land, depreciable property and goodwill were determined using internally developed models that were based on market assumptions and comparable transportation data as well as external valuations performed by unrelated third parties. The market assumptions used as inputs to the Company’s fair value model include replacement construction costs, leasing assumptions, growth rates, discount rates, terminal capitalization rates and transportation yields. The Company uses data on its existing portfolio of investments as well as similar market data from third party sources, when available, in determining these Level 3 inputs. The carrying value of cash and cash equivalents, accounts receivable, prepaid assets and accounts payable and other accrued liabilities, approximate fair value due to their short term, highly liquid nature.

The value of goodwill recognized upon acquisition was determined based on the allocation of the purchase price amongst land and depreciable property and subject to a working capital requirement as outlined in the Purchase Agreement. Management believes that goodwill in the transaction results from various benefits. The pipeline system interconnects with three receipt points, the Panhandle Eastern, Rockies Express and Mississippi River Transmission Pipelines, which allows MoGas the flexibility to source natural gas from a variety of gas producing regions in the U.S. This advantageous position enhances operational efficiency, and allows MoGas customers to procure natural gas in times of peak demand and scarce supply. Two of the largest MoGas customers are also two large suppliers of natural gas for the St. Louis area. Additionally, the characteristics of the tangible assets and operations acquired in the MoGas Transaction are consistent with Company investment criteria and strategy. Some of these criteria include investments that are fixed asset intensive, with long depreciable lives, capable of providing stable cash flows due to limited commodity price sensitivity, as well as, experienced management teams capable of effectively and efficiently operating the assets now and through possible future growth opportunities. Goodwill related to this acquisition is deductible for income tax purposes.

Unaudited Pro Forma Financial Information

The following table illustrates the effect on the Consolidated Statements of Income and Comprehensive Income as well as earnings per share - basic and diluted as if the Company had consummated the MoGas Transaction as of January 1, 2013:

 
Year Ended December 31,
 
2014
 
2013
Total Revenue (1)
$
53,315,951

 
$
42,551,314

Total Expenses (2)
35,742,957

 
33,429,175

Operating Income
17,572,994

 
9,122,139

Other Income (Expense) (3)
(3,997,916
)
 
1,137,606

Tax Benefit (Expense) (4)
641,304

 
(734,461
)
Net Income
14,216,382

 
9,525,284

Less: Net Income attributable to non-controlling interest
1,556,157

 
1,466,767

Net Income attributable to CORR Stockholders
$
12,660,225

 
$
8,058,517

 
 
 
 
Earnings per share:
 
 
 
Basic and Diluted
$
0.27

 
$
0.21

Weighted Average Shares of Common Stock Outstanding:
 
 
 
Basic and Diluted (5)
46,181,724

 
39,099,396


(1) Includes elimination adjustments for intercompany sales and rent.
(2) Includes adjustments for an increase in management fee payable, elimination of intercompany purchases and rent, depreciation, and other miscellaneous expenses.
(3) Includes adjustments for interest expense and other miscellaneous income.
(4) Includes an adjustment for a deferred tax benefit.
(5) Shares outstanding were adjusted for the November 17, 2014 follow-on equity offering mentioned above.

The Company recognized $625 thousand of acquisition related costs that were expensed in the current period. These costs are included in Asset acquisition expense in the Consolidated Statements of Income.
Financing Notes Receivable
FINANCING NOTES RECEIVABLE
FINANCING NOTES RECEIVABLE     
Black Bison Financing Note Receivable
On March 13, 2014, our wholly-owned subsidiary, Corridor Bison, LLC ("Corridor Bison") entered into a Loan Agreement with Black Bison Water Services, LLC ("Black Bison WS"). Black Bison WS's initial loan draw in the amount of $4.3 million was used to acquire real property in Wyoming and to pay loan transaction expenses. Corridor Bison agreed to loan Black Bison WS up to $11.5 million (the "Black Bison Loan") to finance the acquisition and development of real property that will provide water sourcing, water disposal, or water treating and recycling services for the oil and natural gas industry.
On July 23, 2014, the Company increased its secured financing to Black Bison WS from $11.5 million to $15.3 million. The Company executed an amendment to the Loan Agreement to increase the loan to $12 million, and entered into an additional loan for $3.3 million from a taxable REIT subsidiary of the Company, CorEnergy BBWS, Inc. ("CorEnergy BBWS"), on substantially the same terms (the "TRS Loan" and, together with the Black Bison Loan, as amended, the "Loans"). The purpose of the increase in the secured financing was to fund the acquisition and development of real property and related equipment that will provide water sourcing, water disposal, or water treating and recycling services for the oil and natural gas industry. There were no other material changes to the terms of the loan agreement. In connection with the Amendment and the TRS Loan, the Company fully funded the remainder of the $15.3 million capacity of the combined Loans.
Interest will initially accrue on the outstanding principal amount of both Loans at an annual base rate of 12 percent, which base rate will increase by 2 percent of the current base rate per year. In addition, starting in April 2015 and continuing for each month thereafter, the outstanding principal of the Loans will bear variable interest calculated as a function of the increase in volume of water treated by Black Bison WS during the particular month. The base interest plus variable interest, paid monthly, is capped at 19 percent per annum. The Loans mature on March 31, 2024 and are to be amortized by quarterly payments beginning March 31, 2015 and annual prepayments based upon free cash flows of the Borrower and its affiliates commencing in April 2015. The Loans are secured by the real property and equipment held by Black Bison WS and the outstanding equity in Black Bison WS and its affiliates. The Loans are also guarantied by all affiliates of Black Bison WS. The Company believes the notes receivable are fully collectible as of December 31, 2014.
As a condition to the Black Bison Loan, Corridor Bison acquired a Warrant to purchase a number of equity units, which as of March 13, 2014 represented 15 percent of the outstanding equity of Black Bison Intermediate Holdings, LLC ("Intermediate Holdings"). Corridor Bison paid $34 thousand for the Warrant, which amount was determined to represent the fair value of the Warrant as of the date of purchase. The exercise price of the Warrant was $3.16 per unit. The exercise price increases at a rate of 12 percent per annum.
In anticipation of the July 2014 modifications to the Black Bison agreements described above, Corridor Bison assigned to CorEnergy BBWS its rights and obligations in the Warrant dated March 13, 2014. As a condition of the TRS Loan, the parties entered into an Amended and Restated Warrant, pursuant to which the amount available to purchase thereunder was increased to a number of equity units, which as of July 23, 2014 represented 18.72 percent of the outstanding equity of Intermediate Holdings. CorEnergy BBWS paid an additional $51 thousand for this increase in the amount that could be purchased pursuant to the Amended and Restated Warrant. The amount paid was determined to be the current value of the incremental amount that could be purchased under the Amended and Restated Warrant.

Four Wood Financing Note Receivable

On December 31, 2014, our wholly-owned subsidiary, Four Wood Corridor, LLC (“Four Wood Corridor”), entered into a Loan Agreement with SWD Enterprises, LLC (“SWD Enterprises”), pursuant to which Four Wood Corridor made a loan to SWD Enterprises for $4.0 million. Concurrently, our TRS, CorPrivate entered into a TRS Loan Agreement with SWD Enterprises, pursuant to which Corridor Private made a loan to SWD Enterprises for $1.0 million. The proceeds of the REIT loan and the TRS loan were used by SWD Enterprises and its affiliates to finance the acquisition of real and personal property that provides saltwater disposal services for the oil and natural gas industry, and to pay related expenses.
For the REIT loan, interest will initially accrue on the outstanding principal at an annual base rate of 12 percent. For the TRS loan, interest will initially accrue on the outstanding principal at an annual base rate of 13 percent. The base rates of both loans will increase by 2 percent of the current base rate per year. In addition, for both loans, starting in January 2016 and continuing for each month thereafter, the outstanding principal of the Loans will bear variable interest calculated as a function of the increase in volume of water treated by SWD Enterprises during the particular month. The base interest plus variable interest, paid monthly, is capped at 19 percent per annum for the REIT loan and 20 percent per annum for the TRS Loan. The Loans mature on December 31, 2024 and are to be amortized by quarterly payments beginning March 31, 2016 and annual prepayments based upon free cash flows of the Borrower and its affiliates commencing on January 15, 2016. The Loans are secured by the real property and equipment held by SWD Enterprises and the outstanding equity in SWD Enterprises and its affiliates. The Loans are also guarantied by all affiliates of SWD Enterprises. The Company believes the notes receivable are fully collectible as of December 31, 2014.
Variable Interest Entities
VARIABLE INTEREST ENTITIES
VARIABLE INTEREST ENTITIES

The Company's variable interest in Variable Interest Entities ("VIE" or "VIEs") currently are in the form of equity ownership and loans provided by the Company to a VIE. The Company examines specific criteria and uses its judgment when determining if the Company is the primary beneficiary of a VIE and is therefore required to consolidate the investments. Factors considered in determining whether the Company is the primary beneficiary include risk- and reward-sharing, experience and financial condition of the other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE's executive committee or Board of Directors, whether or not the Company has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, existence of unilateral kick-out rights or voting rights, and level of economic disproportionality between the Company and the other partner(s).

Consolidated VIEs
As of December 31, 2014, the Company does not have any investments in VIEs that qualify for consolidation.

Unconsolidated VIE
At December 31, 2014, the Company's recorded investment in Black Bison WS and Intermediate Holdings, collectively a VIE that is unconsolidated, was $15.9 million. The Company's maximum exposure to loss associated with the investment is limited to the Company's outstanding note receivable, related accrued interest receivable and the fair value of the Warrant, discussed in Note 6, totaling $15.9 million as of December 31, 2014. While this entity is a VIE, the Company has determined that the power to direct the activities of the VIE that most significantly impact the VIE's economic performance is not held by the Company, therefore the VIE is not consolidated.
Income Taxes
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 December 31, 2014 and December 31, 2013 are as follows:
Deferred Tax Assets and Liabilities
 
 
December 31, 2014
 
December 31, 2013
Deferred Tax Assets:
 
 
 
 
Net operating loss carryforwards
 
$
(679,692
)
 
$
(65,248
)
Cost recovery of leased and fixed assets
 
(1,042,207
)
 
(966,914
)
Sub-total
 
$
(1,721,899
)
 
$
(1,032,162
)
Deferred Tax Liabilities:
 
 
 
 
Basis reduction of investment in partnerships
 
$
2,842,332

 
$
6,335,805

Net unrealized gain on investment securities
 
142,154

 
28,444

Sub-total
 
2,984,486

 
6,364,249

Total net deferred tax liability
 
$
1,262,587

 
$
5,332,087


For the period ended December 31, 2014, the total deferred tax liability presented above relates to assets held in 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. As of December 31, 2014, the Company had no uncertain tax positions and no penalties and interest were accrued. Tax years subsequent to the year ending November 30, 2007 remain open to examination by federal and state tax authorities.
Total income tax expense differs from the amount computed by applying the federal statutory income tax rate of 35 percent for the years ended December 31, 2014, December 31, 2013, November 30, 2012 and for the one-month transition period ended December 31, 2012 to income or loss from operations and other income and expense for the years presented, as follows:
Income Tax Expense (Benefit)
 
 
For the Years Ended
 
For the One-Month Transition Period Ended
 
 
December 31, 2014
 
December 31, 2013
 
November 30, 2012
 
December 31, 2012
Application of statutory income tax rate
 
$
2,375,903

 
$
2,608,151

 
$
6,852,179

 
$
(848,239
)
State income taxes, net of federal tax benefit
 
(47,731
)
 
273,174

 
442,455

 
(64,771
)
Dividends received deduction
 

 

 
(1,221
)
 
(7,133
)
Income of Real Estate Investment Trust not subject to tax
 
(2,607,207
)
 
(927,254
)
 

 

Other
 
53,472

 
995,447

 
(64,479
)
 

Total income tax expense
 
$
(225,563
)
 
$
2,949,518

 
$
7,228,934

 
$
(920,143
)

Total income taxes are computed by applying the federal statutory rate of 35 percent plus a blended state income tax rate, which was approximately 3.92 percent for the year ended December 31, 2014, 3.11 percent for the year ended December 31, 2013 and 2.26 percent for the other periods presented above. CorEnergy BBWS does not record a provision for state income taxes because it operates only in Wyoming, which does not have state income tax. Because Omega and MoGas primarily only operate in the state of Missouri, a blended state income tax rate of 5 percent was used for the operations of our Omega and MoGas TRSs for the years ended December 31, 2014 and 2013. The restructuring done in December 2012 causes us to hold and operate certain of our assets through one or more TRSs. A TRS is a subsidiary of a REIT that is subject to applicable corporate income tax. For the year ended December 31, 2014, all of the income tax expense presented above relates to the assets and activities held in the Company's TRSs. The components of income tax expense include the following for the periods presented:
Components of Income Tax Expense (Benefit)
 
 
For the Years Ended
 
For the One-Month Transition Period Ended
 
 
December 31, 2014
 
December 31, 2013
 
November 30, 2012
 
December 31, 2012
Current tax expense (benefit)
 
 
 
 
 
 
 
 
Federal
 
$
3,456,858

 
$
(7,139
)
 
$

 
$
3,610,165

State (net of federal tax benefit)
 
387,079

 
20,613

 
38,107

 
245,782

AMT benefit
 

 

 
(8,842
)
 

Total current tax expense (benefit)
 
$
3,843,937

 
$
13,474

 
$
29,265

 
$
3,855,947

Deferred tax expense (benefit)
 
 
 
 
 

 
 
Federal
 
(3,634,689
)
 
2,683,483

 
6,762,974

 
(4,465,104
)
State (net of federal tax benefit)
 
(434,811
)
 
252,561

 
436,695

 
(310,986
)
Total deferred tax expense (benefit)
 
(4,069,500
)
 
2,936,044

 
7,199,669

 
(4,776,090
)
Total income tax expense (benefit), net
 
$
(225,563
)
 
$
2,949,518

 
$
7,228,934

 
$
(920,143
)

As of November 30, 2012, the Company had a net operating loss for federal income tax purposes of approximately $17.2 million. The net operating loss may be carried forward for 20 years. If not utilized, this net operating loss would have expired as follows: $8 thousand, $4.0 million, $3.4 million, $24 thousand and $9.8 million in the years ending November 30, 2028, 2029, 2030, 2031 and 2032, respectively. In the period ending December 31, 2012, all net operating losses of the Company were utilized to reduce the Company's current tax liability. As of December 31, 2013 the TRSs had a net operating loss of $145 thousand. For the year ended December 31, 2014, the TRSs incurred a total net operating loss of approximately $1.56 million, resulting in a total net operating loss of approximately $1.70 million as of December 31, 2014. If not utilized, this net operating loss will expire as follows: $145 thousand, and $1.56 million in the years ending December 31, 2033 and 2034. As of November 30, 2012, an alternative minimum tax credit of $194 thousand was available, which was fully utilized as of December 31, 2012.
The aggregate cost of securities for federal income tax purposes and securities with unrealized appreciation and depreciation, were as follows:
Aggregate Cost of Securities for Income Tax Purposes
 
 
December 31, 2014
 
December 31, 2013
Aggregate cost for federal income tax purposes
 
$
4,218,986

 
$
6,604,636

Gross unrealized appreciation
 
7,436,696

 
16,699,686

Gross unrealized depreciation
 

 

Net unrealized appreciation
 
$
7,436,696

 
$
16,699,686


The Company provides the following tax information to its common stockholders pertaining to the character of distributions paid during tax year 2012, 2013, and 2014. For a stockholder that received all distributions in cash during 2014, 74 percent will be treated as ordinary dividend income and 26 percent will be treated as return of capital. Of the ordinary dividend income, 48 percent will be treated as qualified dividend income. The per share characterization by quarter is reflected in the following table:
2014 Common Stock Tax Information (unaudited)
Record Date
 
Ex-Dividend Date
 
Payable Date
 
Total Distribution per Share
 
Total Ordinary Dividends
 
Qualified Dividends
 
Capital Gain Distributions
 
Nondividend Distributions
01/03/2014
 
01/13/2014
 
1/23/2014
 
$
0.1250

 
$
0.0928

 
$
0.0450

 
$

 
$
0.0322

04/30/2014
 
05/14/2015
 
05/22/2014
 
0.1290

 
0.0958

 
0.0464

 

 
0.0332

07/31/2014
 
08/15/2014
 
08/29/2014
 
0.1300

 
0.0965

 
0.0467

 

 
0.0335

10/31/2014
 
11/14/2014
 
11/28/2014
 
0.1300

 
0.0965

 
0.0467

 

 
0.0335

Total 2014 Distributions
 
$
0.5140

 
$
0.3816

 
$
0.1848

 
$

 
$
0.1324

2013 Common Stock Tax Information (unaudited)
Record Date
 
Ex-Dividend Date
 
Payable Date
 
Total Distribution per Share
 
Total Ordinary Dividends
 
Qualified Dividends
 
Capital Gain Distributions
 
Nondividend Distributions
03/08/2013
 
03/06/2013
 
03/19/2013
 
$
0.1250

 
$
0.1250

 
$
0.1250

 
$

 
$

06/28/2013
 
06/26/2013
 
07/05/2013
 
0.1250

 
0.0367

 
0.0367

 

 
0.0883

09/30/2013
 
09/26/2013
 
10/04/2013
 
0.1250

 

 

 

 
0.1250

Total 2013 Distributions
 
$
0.3750

 
$
0.1617

 
$
0.1617

 
$

 
$
0.2133

2012 Common Stock Tax Information (unaudited)
Record Date
 
Ex-Dividend Date
 
Payable Date
 
Total Distribution per Share
 
Total Ordinary Dividends
 
Qualified Dividends
 
Capital Gain Distributions
 
Nondividend Distributions
02/22/2012
 
02/17/2012
 
03/01/2012
 
$
0.1100

 
$

 
$

 
$

 
$
0.1100

05/23/2012
 
05/21/2012
 
06/01/2012
 
0.1100

 

 

 

 
0.1100

08/24/2012
 
08/22/2012
 
09/04/2012
 
0.1100

 

 

 

 
0.1100

11/23/2012
 
11/20/2012
 
11/30/2012
 
0.1100

 

 

 

 
0.1100

Total 2012 Distributions
 
$
0.4400

 
$

 
$

 
$

 
$
0.4400



We elected effective for our 2013 tax year to be treated as a REIT for federal income tax purposes. Our REIT election, assuming continued compliance with the applicable tests, will continue in effect for 2014 and subsequent tax years. The Company satisfied the annual income test and the quarterly assets tests necessary for us to qualify to be taxed as a REIT for 2013 and 2014. Distributions made during 2013 and treated as qualifying dividend income relate to pre-REIT tax years earnings and profits that were required to be distributed by calendar year end 2013.
Property and Equipment
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Property and Equipment
 
 
December 31, 2014
 
December 31, 2013
Land
 
$
580,000

 
$

Natural gas pipeline
 
124,297,157

 
5,215,424

Vehicles and trailers
 
506,958

 
125,117

Office equipment and computers
 
59,027

 
15,627

Gross property and equipment
 
125,443,142

 
5,356,168

Less: accumulated depreciation
 
(2,623,020
)
 
(2,037,685
)
Net property and equipment
 
$
122,820,122

 
$
3,318,483



The amounts of depreciation of property and equipment recognized for the years ended December 31, 2014, December 31, 2013, November 30, 2012 and the one-month transition period ended December 31, 2012 were $593 thousand, $283 thousand, $281 thousand and $23 thousand, respectively.
Concentrations
CONCENTRATIONS
CONCENTRATIONS
Mowood, Omega
Omega, an indirect wholly-owned TRS of the Company, had a ten-year contract (the "DOD Agreement) with the Department of Defense (“DOD”) to provide natural gas and gas distribution services to Fort Leonard Wood. The DOD Agreement was set to expire on January 31, 2015. On January 28, 2015, the DOD awarded Omega a 6 month bridge extension of the current agreement for Omega to continue providing natural gas and gas distribution services until a new agreement is reached.
Revenue related to the DOD contract accounted for 88 percent, 80 percent, 71 percent, and 84 percent of our sales revenue for the years ended December 31, 2014, December 31, 2013, November 30, 2012, and for the one-month transition period ended December 31, 2012, respectively. Mowood, through its wholly-owned subsidiary Omega, performs management and supervision services related to the expansion of the natural gas distribution system used by the DOD. The amount due from the DOD accounts for 90 percent and 91 percent of the consolidated accounts receivable balances as of December 31, 2014 and December 31, 2013, respectively.
Omega’s contracts for its supply of natural gas are concentrated among select providers. Purchases from its largest supplier of natural gas accounted for 61 percent of our cost of sales for the year ended December 31, 2014. This compares to 41 percent, 29 percent and 58 percent for the years ended December 31, 2013, November 30, 2012, and for the one-month transition period ended December 31, 2012, respectively.
MoGas
MoGas, a wholly-owned TRS of the Company, generates revenue from the transportation of natural gas to a concentrated group of eight customers. Transportation revenue relating to MoGas' largest customer accounted for 67 percent of the contracted capacity for the 37 day period ending December 31, 2014 that the Company owned the MoGas pipeline.
Management and Advisory Agreements
MANAGEMENT AGREEMENT
MANAGEMENT AND ADVISORY AGREEMENTS
On December 1, 2011, the Company executed a Management Agreement with Corridor InfraTrust Management, LLC (“Corridor”). Under the Management Agreement, Corridor (i) presents the Company with suitable acquisition opportunities consistent with the investment policies and objectives of the Company, (ii) is responsible for the day-to-day operations of the Company, and (iii) performs such services and activities relating to the assets and operations of the Company as may be appropriate. A new Management Agreement between the Company and Corridor was approved by the Board of Directors and became effective July1, 2013. The new agreement does not change in any respect the terms for determination or payment of compensation for the Manager, does not have a specific term, and will remain in place unless terminated by the Company or the Manager in the manner permitted pursuant to the agreement. The new management agreement was amended as of January 1, 2014 to change the methodology for calculating the quarterly management fee.
The terms of the Management Agreement include a quarterly management fee equal to 0.25 percent (1.00 percent annualized) of the value of the Company’s Managed Assets as of the end of each quarter. For purposes of the Management Agreement, “Managed Assets” means the total assets of the Company (including any securities receivables, other personal property or real property purchased with or attributable to any borrowed funds) minus (A) the initial invested value of all non-controlling interests, (B) the value of any hedged derivative assets, (C) any prepaid expenses, and (D) all of the accrued liabilities other than (1) deferred taxes and (2) debt entered into for the purpose of leverage. For purposes of the definition of Managed Assets, the Company’s securities portfolio will be valued at then current market value. For purposes of the definition of Managed Assets, other personal property and real property assets will include real and other personal property owned and the assets of the Company invested, directly or indirectly, in equity interests in or loans secured by real estate or personal property (including acquisition related costs and acquisition costs that may be allocated to intangibles or are unallocated), valued at the aggregate historical cost, before reserves for depreciation, amortization, impairment charges or bad debts or other similar noncash reserves.
The Management Agreement also includes a quarterly incentive fee of 10 percent of the increase in distributions paid over a threshold distribution equal to $0.125 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.
The Company pays Corridor, as the Company's Administrator pursuant to an Administrative Agreement, a fee equal to an annual rate of 0.04 percent of aggregate average daily managed assets, with a minimum annual fee of $30 thousand.
Tortoise Capital Advisors, L.L.C. (“TCA”) is compensated by Corridor to provide investment services related to the monitoring and disposition of our current securities portfolio.
Fair Value of Other Securities
FAIR VALUE OF OTHER SECURITIES
FAIR VALUE OF OTHER SECURITIES

The major components of net realized and unrealized gain or loss on trading securities for the years ended December 31, 2014, December 31, 2013 and November 30, 2012, and for the one-month transition period ended December 31, 2012, are as follows:
Major Components of Net Realized and Unrealized Gain (Loss) on Trading Securities
 
 
For the Years Ended
 
For the One-Month Transition Period Ended
 
 
December 31,
2014
 
December 31,
2013
 
November 30,
2012
 
December 31,
2012
Net unrealized gain on trading securities
 
$

 
$

 
$
3,985,269

 
$
4,663,211

Net realized gain (loss) on trading securities
 

 
(251,213
)
 
24,664

 
(6,432,269
)
Total net realized and unrealized gain (loss) on trading securities
 
$

 
$
(251,213
)
 
$
4,009,933

 
$
(1,769,058
)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following tables provide the fair value measurements of applicable Company assets and liabilities by level within the fair value hierarchy as of December 31, 2014 and December 31, 2013. These assets and liabilities are measured on a recurring basis.
December 31, 2014
 
 
December 31, 2014
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Other equity securities
 
$
9,572,181

 
$

 
$

 
$
9,572,181

Total Assets
 
$
9,572,181

 
$

 
$

 
$
9,572,181

December 31, 2013
 
 
December 31, 2013
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Other equity securities
 
23,304,321

 

 

 
23,304,321

Total Assets
 
$
23,304,321

 
$

 
$

 
$
23,304,321


The changes for all Level 3 securities measured at fair value on a recurring basis using significant unobservable inputs for the years ended December 31, 2014, and December 31, 2013 are as follows:
Level 3 Rollforward
For the Year Ended 12/31/14
 
Fair Value Beginning Balance
 
Acquisitions
 
Disposals
 
Total Realized and Unrealized Gains Included in Net Income
 
Return of Capital Adjustments Impacting Cost Basis of Securities
 
Fair Value Ending Balance
 
Changes in Unrealized Gains, Included In Net Income, Relating to Securities Still Held (1)
Other equity securities
 
$
23,304,321

 
$

 
$
(13,245,379
)
 
$
139,612

 
$
(981,373
)
 
$
9,217,181

 
$
139,612

Warrant investment
 

 
97,500

 

 
257,500

 

 
355,000

 
257,500

Total
 
$
23,304,321

 
$
97,500

 
$
(13,245,379
)
 
$
397,112

 
$
(981,373
)
 
$
9,572,181

 
$
397,112

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Year Ended 12/31/13
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other equity securities
 
$
19,707,126

 
$

 
$

 
$
5,292,890

 
$
(1,695,695
)
 
$
23,304,321

 
$
5,292,890

Total
 
$
19,707,126

 
$

 
$

 
$
5,292,890

 
$
(1,695,695
)
 
$
23,304,321

 
$
5,292,890

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1) Located in Net realized and unrealized gain on other equity securities in the Consolidated Statements of Income
On October 1, 2014, Natural Resource Partners L.P. completed its acquisition of VantaCore. The Company's portion of the sale proceeds was approximately $13.6 million, of which $2.9 million will be held in escrow pending certain post closing obligations or the expiration of certain time periods. The Company recorded a discount to the escrow receivable of approximately $370 thousand, resulting in the escrow receivable of approximately $2.4 million as of December 31, 2014. This results in disposals of other equity securities of approximately $13.2 million for the year ended December 31, 2014.
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 years ended December 31, 2014 and December 31, 2013.
In accordance with ASC 820, the Company fair values their derivative financial instruments. Please refer to Footnote 15, Interest Rate Hedge Swaps, for more information.
Valuation Techniques and Unobservable Inputs
The Company’s other equity securities, which represent securities issued by private companies, are classified as Level 3 assets. Significant judgment is required in selecting the assumptions used to determine the fair values of these investments. See Note 2, Significant Accounting Policies, for additional discussion.
At December 31, 2013 the Company’s investments in private companies were valued using one or a combination of the following valuation techniques: (i) analysis of valuations for publicly traded companies in a similar line of business (“public company analysis”), (ii) analysis of valuations for comparable M&A transactions (“M&A analysis”) and (iii) discounted cash flow analysis.
The public company analysis utilizes valuation multiples for publicly traded companies in a similar line of business as the portfolio company to estimate the fair value of such investment. Typically, the Company’s analysis focuses on the ratio of enterprise value to earnings before interest expense, income tax expense, depreciation and amortization (“EBITDA”) which is commonly referred to as an EV/EBITDA multiple. The Company selects a range of multiples given the trading multiples of similar publicly traded companies and applies such multiples to the portfolio company’s EBITDA to estimate the portfolio company’s trailing, proforma, projected or average (as appropriate) EBITDA to estimate the portfolio company’s enterprise value and equity value. The Company also selects a range of trading market yields of similar public companies and applies such yields to the portfolio company’s estimated distributable cash flow. When calculating these values, the Company applies a discount, when applicable, to the portfolio company’s estimated equity value for the size of the company and the lack of liquidity in the portfolio company’s securities. The M&A analysis utilizes valuation multiples for historical M&A transactions for companies or assets in a similar line of business as the portfolio company to estimate the fair value of such investment. Typically, the Company’s analysis focuses on EV/EBITDA multiples. The Company selects a range of multiples based on EV/EBITDA multiples for similar M&A transactions or similar companies and applies such ranges to the portfolio company’s analytical EBITDA to estimate the portfolio company’s enterprise value.
The discounted cash flow ("DCF") analysis is used to estimate the equity value for the portfolio company based on estimated DCF of such portfolio company. Such cash flows include an estimate of terminal value for the portfolio company. A present value of these cash flows is determined by using estimated discount rates (based on the Company’s estimate for weighted average cost of capital for such portfolio company).
Under all of these valuation techniques, the Company estimated operating results of its portfolio companies (including EBITDA). These estimates utilize unobservable inputs such as historical operating results, which may be unaudited, and projected operating results, which were based on expected operating assumptions for such portfolio company. The Company also consulted with management of the portfolio companies to develop these financial projections. These estimates were sensitive to changes in assumptions specific to such portfolio company as well as general assumptions for the industry. Other unobservable inputs utilized in the valuation techniques outlined above include: possible discounts for lack of marketability, selection of publicly-traded companies, selection of similar M&A transactions, selected ranges for valuation multiples, selected range of yields and expected required rates of return and weighted average cost of capital. The various inputs were weighted as appropriate, and other factors may have been weighted into the valuation, including recent capital transactions of the Company.
Changes in EBITDA multiples, or discount rates may change the fair value of the Company’s portfolio investments. Generally, a decrease in EBITDA multiples or DCF multiples, or an increase in discount rates, when applicable, may result in a decrease in the fair value of the Company’s portfolio investments.
Quantitative Table for Valuation Techniques used as of December 31, 2013
The following table summarizes the significant unobservable inputs that the Company used to value its portfolio investments categorized as Level 3 as of December 31, 2013.

Significant Unobservable Inputs Used To Value Portfolio Investments
December 31, 2013
 
 
 
 
 
 
Unobservable Inputs
 
Range
 
Weighted Average
Assets at Fair Value
 
Fair Value
 
Valuation Technique
 
 
Low
 
High
 
Other equity securities, at fair value
 
$
23,304,321
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