CORENERGY INFRASTRUCTURE TRUST, INC., 10-K filed on 3/14/2016
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2015
Feb. 29, 2016
Jun. 30, 2015
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, 2015 
 
 
Amendment Flag
false 
 
 
Document Fiscal Year Focus
2015 
 
 
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
 
 
$ 375,081,935 
Entity Common Stock, Shares Outstanding
 
11,951,757 
 
Consolidated Balance Sheets (USD $)
Dec. 31, 2015
Dec. 31, 2014
Assets [Abstract]
 
 
Leased property, net of accumulated depreciation of $33,869,263 and $19,417,025
$ 509,226,215 
$ 260,280,029 
Leased property held for sale, net of accumulated depreciation of $0 and $5,878,933
8,247,916 
Property and equipment, net of accumulated depreciation of $5,948,988 and $2,623,020
119,629,978 
122,820,122 
Financing notes and related accrued interest receivable, net of reserve of $13,784,137 and $0
7,675,626 
20,687,962 
Other equity securities, at fair value
8,393,683 
9,572,181 
Cash and cash equivalents
14,618,740 
7,578,164 
Accounts receivable
10,431,240 
7,793,515 
Intangibles and deferred costs, net of accumulated amortization of $2,774,706 and $2,271,080
4,697,672 
4,384,975 
Prepaid expenses and other assets
491,024 
732,110 
Deferred tax asset
1,606,976 
Goodwill
1,718,868 
1,718,868 
Total Assets
678,490,022 
443,815,842 
Liabilities and Equity [Abstract]
 
 
Current maturities of long-term debt
66,132,000 
3,528,000 
Long-term debt
151,243,153 
63,532,000 
Asset retirement obligation
12,839,042 
Accounts payable and other accrued liabilities
2,317,774 
3,935,307 
Management fees payable
1,763,747 
1,164,399 
Deferred tax liability
1,262,587 
Line of credit
32,141,277 
Unearned revenue
711,230 
Total Liabilities
234,295,716 
106,274,800 
Stockholders' Equity Attributable to Parent [Abstract]
 
 
Series A Cumulative Redeemable Preferred Stock 7.375%, $56,250,000 liquidation preference ($2,500 per share, $0.001 par value), 10,000,000 authorized; 22,500 and 0 issued and outstanding as of December 31, 2015, and December 31, 2014
56,250,000 
Capital stock, non-convertible, $0.001 par value; 11,939,697 and 9,321,010 shares issued and outstanding at December 31, 2015, and December 31, 2014 (100,000,000 shares authorized)
11,940 
9,321 
Additional paid-in capital
361,581,507 
309,987,724 
Accumulated other comprehensive income
190,797 
453,302 
Total CorEnergy Equity
418,034,244 
310,450,347 
Non-controlling Interest
26,160,062 
27,090,695 
Total Equity
444,194,306 
337,541,042 
Total Liabilities and Equity
$ 678,490,022 
$ 443,815,842 
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2015
Dec. 31, 2014
Statement of Financial Position [Abstract]
 
 
Accumulated depreciation, leased property
$ 33,869,263 
$ 19,417,025 
Accumulated deprecation, leased property held for sale
5,878,933 
Accumulated depreciation, property and equipment
5,948,988 
2,623,020 
Accumulated amortization, intangible and deferred costs
2,774,706 
2,271,080 
Reserve for financing notes and related accrued interest receivable
$ 13,784,137 
$ 0 
Preferred stock, par value (in dollars per share)
$ 0.001 
$ 0 
Preferred stock, authorized
10,000,000 
Preferred stock, issued
22,500 
Preferred stock, outstanding
22,500 
Capital stock non-convertible, par value (in dollars per share)
$ 0.001 
$ 0.001 
Capital stock non-convertible, shares issued
11,939,697 
9,321,010 
Capital stock non-convertible, shares outstanding
11,939,697 
9,321,010 
Capital stock non-convertible, shares authorized
100,000,000 
100,000,000 
Consolidated Statements of Income and Comprehensive Income (USD $)
3 Months Ended 12 Months Ended
Dec. 31, 2015
Sep. 30, 2015
Jun. 30, 2015
Mar. 31, 2015
Dec. 31, 2014
Sep. 30, 2014
Jun. 30, 2014
Mar. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Revenue
 
 
 
 
 
 
 
 
 
 
 
Lease revenue
$ 16,984,036 
$ 16,966,056 
$ 6,799,879 
$ 7,336,101 
$ 7,204,493 
$ 7,191,187 
$ 7,065,677 
$ 6,762,408 
$ 48,086,072 
$ 28,223,765 
$ 22,552,976 
Sales revenue
1,717,787 
1,434,694 
1,665,908 
2,341,655 
2,894,556 
1,741,209 
1,813,607 
3,259,530 
7,160,044 
9,708,902 
8,733,044 
Financing revenue
185,650 
182,604 
668,904 
660,392 
498,984 
413,482 
139,728 
25,619 
1,697,550 
1,077,813 
Transportation revenue
3,591,459 
3,557,096 
3,546,979 
3,649,735 
1,298,093 
14,345,269 
1,298,093 
Total Revenue
22,478,932 
22,140,450 
12,681,670 
13,987,883 
11,896,126 
9,345,878 
9,019,012 
10,047,557 
71,288,935 
40,308,573 
31,286,020 
Expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of sales (excluding depreciation expense)
618,073 
382,851 
569,958 
1,248,330 
1,914,901 
1,284,711 
1,384,998 
2,707,358 
2,819,212 
7,291,968 
6,734,665 
Depreciation, amortization and ARO accretion expense
5,385,068 
5,836,665 
3,495,986 
4,048,832 
3,575,420 
3,252,604 
3,220,253 
3,146,978 
18,766,551 
13,195,255 
11,491,285 
Provision for loan losses
5,833,000 
7,951,137 
13,784,137 
Transportation, maintenance and general and administrative
935,775 
856,050 
1,076,352 
991,608 
458,872 
3,859,785 
458,872 
Operating expenses
83,095 
264,812 
195,673 
206,360 
194,627 
210,009 
213,533 
222,741 
749,940 
840,910 
924,571 
General and administrative
2,434,094 
2,837,762 
1,905,329 
2,568,519 
3,263,345 
1,841,493 
1,334,960 
1,432,955 
9,745,704 
7,872,753 
5,879,864 
Total Expenses
15,289,105 
18,129,277 
7,243,298 
9,063,649 
9,407,165 
6,588,817 
6,153,744 
7,510,032 
49,725,329 
29,659,758 
25,030,385 
Operating Income
7,189,827 
4,011,173 
5,438,372 
4,924,234 
2,488,961 
2,757,061 
2,865,268 
2,537,525 
21,563,606 
10,648,815 
6,255,635 
Other Income (Expense)
 
 
 
 
 
 
 
 
 
 
 
Net distributions and dividend income
245,374 
241,563 
193,410 
590,408 
136,909 
1,688,830 
5,988 
5,056 
1,270,755 
1,836,783 
584,814 
Net realized and unrealized loss on trading securities
 
 
 
 
 
 
 
 
(251,213)
Net realized and unrealized gain (loss) on other equity securities
(148,045)
(1,408,751)
43,385 
449,798 
(2,978,764)
(865,470)
2,084,026 
1,294,182 
(1,063,613)
(466,026)
5,617,766 
Interest expense
(3,652,111)
(3,854,913)
(1,126,888)
(1,147,272)
(1,051,151)
(977,635)
(819,360)
(826,976)
(9,781,184)
(3,675,122)
(3,288,378)
Total Other Income (Expense)
(3,554,782)
(5,022,101)
(890,093)
(107,066)
(3,893,006)
(154,275)
1,270,654 
472,262 
(9,574,042)
(2,304,365)
2,662,989 
Income before income taxes
3,635,045 
(1,010,928)
4,548,279 
4,817,168 
(1,404,045)
2,602,786 
4,135,922 
3,009,787 
11,989,564 
8,344,450 
8,918,624 
Taxes
 
 
 
 
 
 
 
 
 
 
 
Current tax expense
276,755 
105,020 
104,479 
435,756 
2,503,808 
486,054 
854,075 
922,010 
3,843,937 
13,474 
Deferred tax expense (benefit)
(646,857)
(1,953,973)
(153,342)
(115,391)
(4,310,646)
(161,171)
742,879 
(340,562)
(2,869,563)
(4,069,500)
2,936,044 
Income tax expense (benefit), net
(370,102)
(1,848,953)
(48,863)
320,365 
(1,806,838)
324,883 
742,879 
513,513 
(1,947,553)
(225,563)
2,949,518 
Net Income
4,005,147 
838,025 
4,597,142 
4,496,803 
402,793 
2,277,903 
3,393,043 
2,496,274 
13,937,117 
8,570,013 
5,969,106 
Less: Net Income attributable to non-controlling interest
384,221 
410,806 
412,004 
410,175 
388,423 
389,485 
387,135 
391,114 
1,617,206 
1,556,157 
1,466,767 
Net Income attributable to CorEnergy Stockholders
3,620,926 
427,219 
4,185,138 
4,086,628 
14,370 
1,888,418 
3,005,908 
2,105,160 
12,319,911 
7,013,856 
4,502,339 
Preferred dividend requirements
1,037,110 
1,037,109 
1,037,109 
737,500 
3,848,828 
Net Income attributable to Common Stockholders
2,583,816 
(609,890)
3,148,029 
3,349,128 
14,370 
1,888,418 
3,005,908 
2,105,160 
8,471,083 
7,013,856 
4,502,339 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Changes in fair value of qualifying hedges attributable to CorEnergy stockholders
218,576 
(223,176)
18,202 
(276,107)
(197,245)
214,602 
(270,838)
(70,620)
(262,505)
(324,101)
777,403 
Changes in fair value of qualifying hedges attributable to non-controlling interest
51,104 
(52,180)
4,256 
(64,555)
(46,120)
50,175 
(63,324)
(16,511)
(61,375)
(75,780)
181,762 
Net Change in Other Comprehensive Income (Loss)
269,680 
(275,356)
22,458 
(340,662)
(243,365)
264,777 
(334,162)
(87,131)
(323,880)
(399,881)
959,165 
Total Comprehensive Income
4,274,827 
562,669 
4,619,600 
4,156,141 
159,428 
2,542,680 
3,058,881 
2,409,143 
13,613,237 
8,170,132 
6,928,271 
Less: Comprehensive income attributable to non-controlling interest
435,325 
358,626 
416,260 
345,620 
342,303 
439,660 
323,811 
374,603 
1,555,831 
1,480,377 
1,648,529 
Comprehensive Income attributable to CorEnergy Stockholders
$ 3,839,502 
$ 204,043 
$ 4,203,340 
$ 3,810,521 
$ (182,875)
$ 2,103,020 
$ 2,735,070 
$ 2,034,540 
$ 12,057,406 
$ 6,689,755 
$ 5,279,742 
Earnings Per Common Share:
 
 
 
 
 
 
 
 
 
 
 
Basic (in dollars per share)
$ 0.22 
$ (0.05)
$ 0.33 
$ 0.36 
$ 0.00 
$ 0.30 
$ 0.48 
$ 0.35 
$ 0.79 
$ 1.06 
$ 0.93 
Diluted (in dollars per share)
$ 0.22 
$ (0.05)
$ 0.33 
$ 0.36 
$ 0.00 
$ 0.30 
$ 0.48 
$ 0.35 
$ 0.79 
$ 1.06 
$ 0.93 
Weighted Average Shares of Common Stock Outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic (in shares)
 
 
 
 
 
 
 
 
10,685,892 
6,605,715 
4,829,879 
Diluted (in shares)
 
 
 
 
 
 
 
 
10,685,892 
6,605,715 
4,829,879 
Dividends declared per share (in dollars per share)
 
 
 
 
 
 
 
 
$ 2.75 
$ 2.57 
$ 1.875 
Consolidated Statements of Equity (USD $)
Total
USD ($)
Capital Stock [Member]
USD ($)
Preferred Stock [Member]
USD ($)
Warrants [Member]
USD ($)
Additional Paid-in Capital [Member]
USD ($)
Accumulated Other Comprehensive Income (Loss) [Member]
USD ($)
Retained Earnings (Accumulated Deficit) [Member]
USD ($)
Non-Controlling Interest [Member]
USD ($)
Parent Company [Member]
USD ($)
Series A Cumulative Redeemable Preferred Stock [Member]
USD ($)
Series A Cumulative Redeemable Preferred Stock [Member]
Preferred Stock [Member]
USD ($)
Series A Cumulative Redeemable Preferred Stock [Member]
Additional Paid-in Capital [Member]
USD ($)
Dividend Reinvestment Plan [Member]
USD ($)
Dividend Reinvestment Plan [Member]
Capital Stock [Member]
Beginning balance at Dec. 31, 2012
$ 210,842,192 
$ 4,828 
 
$ 1,370,700 
$ 175,275,988 
 
$ 4,209,023 
$ 29,981,653 
 
 
 
 
 
 
Beginning balance, shares at Dec. 31, 2012
 
4,828,133 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
5,969,106 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in fair value of qualifying hedges attributable to CorEnergy stockholders
777,403 
 
 
 
 
 
 
 
777,403 
 
 
 
 
 
Net Income (Loss) attributable to non-controlling interest
1,466,767 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
3,099 
 
 
 
 
 
 
 
 
 
 
 
 
Reinvestment of distributions to stockholders
 
 
 
108,116 
 
 
 
 
 
 
 
 
 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax
959,165 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest
6,928,271 
 
 
 
 
777,403 
4,502,339 
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)
 
 
 
 
 
 
 
(108,119)
 
 
 
 
 
Capital stock, non-convertible, $0.001 par value; 11,939,697 and 9,321,010 shares issued and outstanding at December 31, 2015, and December 31, 2014 (100,000,000 shares authorized)
4,831 
 
 
 
 
 
 
 
 
 
 
 
 
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
173,460,344 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income
777,403 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated retained earnings
1,580,062 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-controlling Interest
 
 
 
 
 
 
 
28,348,030 
 
 
 
 
 
 
Ending balance at Dec. 31, 2013
205,541,370 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance, shares at Dec. 31, 2013
 
4,831,232 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
8,570,013 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in fair value of qualifying hedges attributable to CorEnergy stockholders
(324,101)
 
 
 
 
 
 
 
(324,101)
 
 
 
 
 
Net Income (Loss) attributable to non-controlling interest
1,556,157 
 
 
 
 
 
 
1,556,157 
 
 
 
 
 
 
Shares issued during period
 
4,485,000 
 
 
 
 
 
 
 
 
 
 
 
 
Net offering proceeds
141,725,228 
4,485 
 
 
141,720,743 
 
 
 
 
 
 
 
 
 
Changes in fair value of qualifying hedges attributable to non-controlling interest
(75,780)
 
 
 
 
 
 
75,780 
 
 
 
 
 
 
Distributions to stockholders sourced as return of capital
(15,328,084)
 
 
 
(6,734,166)
 
(8,593,918)
 
 
 
 
 
 
 
Common stock issued under director's compensation plan (in shares)
 
805 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock issued under director's compensation plan
30,000 
 
 
29,999 
 
 
 
 
 
 
 
 
 
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders
(2,737,712)
 
 
 
 
 
 
(2,737,712)
 
 
 
 
 
 
Reinvestment of distributions to stockholders, shares
 
 
 
 
 
 
 
 
 
 
 
 
 
3,973 
Reinvestment of distributions to stockholders
 
 
 
140,104 
 
 
 
 
 
 
 
 
 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax
(399,881)
 
 
 
 
 
 
 
 
 
 
 
 
 
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 
 
 
 
 
 
 
 
7,013,856 
 
 
 
 
 
Reinvestment of distributions by common stockholders in additional common shares
(140,108)
 
 
 
 
 
 
 
(140,108)
 
 
 
(140,108)
 
Adjustments to Additional Paid in Capital, Warrant Issued
 
 
 
(1,370,700)
1,370,700 
 
 
 
 
 
 
 
 
 
Capital stock, non-convertible, $0.001 par value; 11,939,697 and 9,321,010 shares issued and outstanding at December 31, 2015, and December 31, 2014 (100,000,000 shares authorized)
9,321 
 
 
 
 
 
 
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
309,987,724 
 
 
 
 
 
 
 
309,950,440 
 
 
 
 
 
Accumulated other comprehensive income
453,302 
 
 
 
 
453,302 
 
 
453,302 
 
 
 
 
 
Accumulated retained earnings
 
 
 
 
 
 
 
 
 
 
 
 
Non-controlling Interest
27,090,695 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance at Dec. 31, 2014
337,541,042 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance, shares at Dec. 31, 2014
9,321,010 
9,321,010 
 
 
 
 
 
 
9,321,010 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
13,937,117 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in fair value of qualifying hedges attributable to CorEnergy stockholders
(262,505)
 
 
 
 
(262,505)
 
 
(262,505)
 
 
 
 
 
Net Income (Loss) attributable to non-controlling interest
1,617,206 
 
 
 
 
 
 
1,617,206 
 
 
 
 
 
 
Shares issued during period
 
2,587,500 
 
 
 
 
 
 
 
 
 
 
 
 
Net offering proceeds
73,257,364 
2,587 
 
 
73,254,777 
 
 
 
 
54,210,476 
56,250,000 
(2,039,524)
 
 
Changes in fair value of qualifying hedges attributable to non-controlling interest
(61,375)
 
 
 
 
 
 
61,375 
 
 
 
 
 
 
Distributions to stockholders sourced as return of capital
(29,346,139)
 
 
 
(20,529,353)
 
(8,816,786)
 
 
 
 
 
 
 
Common stock issued under director's compensation plan (in shares)
 
2,677 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock issued under director's compensation plan
90,000 
 
 
89,997 
 
 
 
 
 
 
 
 
 
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders
(2,486,464)
 
 
 
 
 
 
(2,486,464)
 
 
 
 
 
 
Reinvestment of distributions to stockholders, shares
 
 
 
 
 
 
 
 
 
 
 
 
 
28,510 
Reinvestment of distributions to stockholders
 
29 
 
 
817,886 
 
 
 
 
 
 
 
 
 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax
(323,880)
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest
13,613,237 
 
 
 
 
(262,505)
12,319,911 
1,555,831 
 
 
 
 
 
 
Net income attributable to CORR stockholders
12,319,911 
 
 
 
 
 
 
 
12,319,911 
 
 
 
 
 
Reinvestment of distributions by common stockholders in additional common shares
 
 
 
 
 
 
 
 
(817,915)
 
 
 
(817,915)
 
Series A preferred stock dividends
(3,503,125)
 
 
 
 
 
(3,503,125)
 
 
 
 
 
 
 
Capital stock, non-convertible, $0.001 par value; 11,939,697 and 9,321,010 shares issued and outstanding at December 31, 2015, and December 31, 2014 (100,000,000 shares authorized)
11,940 
 
56,250,000 
 
 
 
 
 
11,940 
 
 
 
 
 
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
361,581,507 
 
 
 
 
 
 
 
361,581,507 
 
 
 
 
 
Accumulated other comprehensive income
190,797 
 
 
 
 
190,797 
 
 
190,797 
 
 
 
 
 
Accumulated retained earnings
 
 
 
 
 
 
 
 
 
 
 
 
Non-controlling Interest
26,160,062 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance at Dec. 31, 2015
$ 444,194,306 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance, shares at Dec. 31, 2015
11,939,697 
11,939,697 
 
 
 
 
 
 
11,939,697 
 
 
 
 
 
Consolidated Statements of Equity (Parenthetical) (Series A Preferred Stock [Member])
12 Months Ended
Dec. 31, 2015
Series A Preferred Stock [Member]
 
Preferred stock interest rate
7.375% 
Consolidated Statements of Cash Flows (USD $)
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Operating Activities
 
 
 
Net Income
$ 13,937,117 
$ 8,570,013 
$ 5,969,106 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Deferred income tax, net
(2,869,563)
(4,069,500)
2,936,044 
Depreciation, amortization and ARO accretion
20,662,297 
14,289,017 
12,339,704 
Provision for loan loss
13,784,137 
Net distributions and dividend income, including recharacterization of income
(371,323)
960,384 
(567,276)
Net realized and unrealized loss on trading securities
251,213 
Net realized and unrealized (gain) loss on other equity securities
1,063,613 
(1,357,496)
(5,617,766)
Unrealized gain on derivative contract
(70,333)
(70,720)
(11,095)
Common stock issued under directors compensation plan
90,000 
30,000 
Changes in assets and liabilities:
 
 
 
Increase in accounts and other receivables
(2,273,092)
(966,667)
(1,856,528)
Increase in financing note accrued interest receivable
(355,208)
(Increase) decrease in prepaid expenses and other assets
(37,462)
96,743 
272,194 
Increase in management fee payable
599,348 
468,961 
555,892 
Increase (decrease) in accounts payable and other accrued liabilities
(847,683)
(2,276,773)
260,538 
Increase (decrease) in current income tax liability
583,361 
(4,690,329)
Increase (decrease) in unearned revenue
(711,230)
711,230 
(2,133,685)
Net cash provided by operating activities
42,600,618 
16,968,553 
7,708,012 
Investing Activities
 
 
 
Proceeds from sale of long-term investment of trading and other equity securities
10,806,879 
5,580,985 
Proceeds from sale of leased property held for sale
7,678,246 
Deferred lease costs
(336,141)
(74,037)
Acquisition expenditures
(251,513,344)
(168,204,309)
(1,834,036)
Purchases of property and equipment, net
(138,918)
(11,970)
(40,670)
Proceeds from sale of property and equipment
948 
5,201 
Increase in financing notes receivable
(524,037)
(20,648,714)
Principal payment on financing note receivable
100,000 
Return of capital on distributions received
121,578 
981,373 
1,772,776 
Net cash (used) provided by investing activities
(244,612,616)
(177,075,793)
5,410,219 
Financing Activities
 
 
 
Payments on lease obligation
(20,698)
Debt financing costs
(1,617,991)
(3,269,429)
(144,798)
Net offering proceeds on Series A preferred stock
54,210,476 
Net offering proceeds on common stock
73,184,679 
141,797,913 
(523,094)
Net offering proceeds on convertible debt
111,262,500 
Dividends paid on Series A preferred stock
(3,503,125)
Dividends paid on common stock
(28,528,224)
(15,187,976)
(8,946,941)
Distributions to non-controlling interest
(2,486,464)
(2,737,712)
(3,282,152)
Advances on revolving line of credit
45,392,332 
34,676,948 
221,332 
Payments on revolving line of credit
(77,533,609)
(2,617,606)
(139,397)
Proceeds from term debt
45,000,000 
Principal payments on term debt
(1,800,000)
Principal payments on credit facility
(4,528,000)
(2,940,000)
Net cash (used) provided by financing activities
209,052,574 
149,722,138 
(12,835,748)
Net Change in Cash and Cash Equivalents
7,040,576 
(10,385,102)
282,483 
Cash and Cash Equivalents at beginning of period
7,578,164 
17,963,266 
17,680,783 
Cash and Cash Equivalents at end of period
14,618,740 
7,578,164 
17,963,266 
Supplemental Disclosure of Cash Flow Information
 
 
 
Interest paid
7,873,333 
2,762,903 
2,651,355 
Income taxes paid (net of refunds)
747,406 
3,260,576 
4,637,068 
Non-Cash Investing Activities
 
 
 
Change in accounts payable and accrued expenses related to intangibles and deferred costs
(68,417)
Change in accounts payable and accrued expenses related to acquisition expenditures
(614,880)
270,615 
(1,545,163)
Change in accounts payable and accrued expenses related to issuance of financing and other notes receivable
(39,248)
39,248 
Non-Cash Financing Activities
 
 
 
Change in accounts payable and accrued expenses related to the issuance of common equity
(72,685)
72,685 
(523,094)
Change in accounts payable and accrued expenses related to debt financing costs
(43,039)
(176,961)
116,383 
Reinvestment of distributions by common stockholders in additional common shares
 
$ 140,108 
$ 108,119 
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 common 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. We consider our investments in these energy infrastructure assets to be a single business segment and report them accordingly in our financial statements.
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, hold our securities portfolio.
Mowood Corridor, Inc. and its wholly-owned subsidiary, Mowood, LLC, which is the holding company for one of our operating companies, Omega Pipeline Company, LLC.
Corridor MoGas, Inc. holds two other operating companies, MoGas Pipeline, LLC ("MoGas") and United Property Systems, LLC.
CorEnergy BBWS, Inc., Corridor Private and Corridor Leeds Path West, Inc. hold financing notes receivable.
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 Accounting Standards Codification ("ASC"), as published by the Financial Accounting Standards Board ("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 non-controlling interests.
The Company consolidates certain entities when it is deemed to be the primary beneficiary in a variable interest entity ("VIE"), as defined in FASB ASC Topic on Consolidation. The Topic on Consolidation requires the consolidation of other entities in which the Company 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 3 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 periodically reviews its long-lived assets, primarily real estate, 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 loss is recognized, if any.
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, in which case the acquisition costs are expensed as incurred. 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. In a business combination, goodwill is recorded when the purchase price paid exceeds the estimated fair value of the net assets acquired. Refer to Note 5 for further details regarding the goodwill acquired in the MoGas Transaction.
The Company reviews its long-lived assets, including goodwill, for impairment at least annually or whenever events or circumstances indicate the carrying value of an asset 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. If the carrying amount of an asset exceeds its implied fair value, an impairment loss would be recognized for the amount of the excess. No long-lived asset or goodwill impairment write-downs were recognized during the years ended December 31, 2015, 2014 and 2013. See paragraph (H) below.
F. Earnings Per Share – Basic earnings per share ("EPS") is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period except for periods of net loss for which no common share equivalents are included because their effect would be anti-dilutive. Dilutive common equivalent shares consist of shares issuable upon conversion of the convertible notes calculated using the if-converted method. See paragraph (N) below.
G. Investment Securities – The Company’s investments in securities are classified as other equity securities and represent interests in private companies which the Company has elected to report at fair value under the fair value option.
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 income. Each quarter the Company reviews its financing notes receivable to determine if the balances are realizable based on factors affecting the collectability of those balances. Factors may include credit quality, timeliness of required periodic payments, past due status and management discussions with obligors. The Company evaluates the collectability of both interest and principal of each of its loans to determine if an allowance is needed. An allowance will be recorded when based on current information and events, the Company determines it is probable that it will be unable to collect all amounts due according to the existing contractual terms. If the Company does determine an allowance is necessary, the amount deemed uncollectable is expensed in the period of determination. An insignificant delay or shortfall in the amount of payments does not necessarily result in the recording of an allowance. Generally, when interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing financing revenue on that loan until all principal and interest have been brought current. Interest income recognition is resumed if and when the previously reserved-for financing notes become contractually current and performance has been demonstrated. Payments received subsequent to the recording of an allowance will be recorded as a reduction to principal. During the year ended December 31, 2015, the Company created a provision for loan losses in the amount of approximately $13.8 million. The Company's 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 receivables may also represent timing differences between straight-line revenue recognition and contractual lease receipts and is recorded within accounts and other receivables on the balance sheet. As of December 31, 2015, 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 within accounts and other receivables on the balance sheet. Accounts are considered past due based on the terms of sale with the customers. The Company reviews accounts for collectability based on an analysis of specific outstanding receivables, current economic conditions and past collection experience. At December 31, 2015, and December 31, 2014, 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. 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. Asset Retirement Obligations – In accordance with ASC 410-20, Asset Retirement Obligations, we recognized an asset retirement obligation (ARO) in conjunction with the acquisition of the GIGS in June 2015 that existed at the time. The liability was initially measured using the amount agreed upon between the parties in an arm's length transaction, which under ASC 410-20, represents fair value, and will be subsequently adjusted for ARO accretion expense and changes in the amount or timing of the estimated cash flows.
We measure changes in the liability for an ARO due to passage of time by applying an interest method of allocation to the amount of the liability at the beginning of the period. The interest rate used to measure that change is the credit-adjusted risk-free rate that existed when the ARO, or portion thereof, was initially measured. The Company's credit-adjusted risk-free rate at the time of acquisition was 5.58 percent. The increase in the carrying amount of the liability will be recognized as an expense classified as an operating item in the statement of income, hereinafter referred to as ARO accretion expense.
The fair value of the obligation at the acquisition date has been capitalized as part of the carrying amount of the related long-lived assets and will be depreciated over the asset's remaining useful life. The useful lives of most pipeline gathering systems are primarily derived from available supply resources and ultimate consumption of those resources by end users. Indeterminate asset retirement obligation costs will be recognized in the period in which sufficient information exists to reasonably estimate potential settlement dates and methods. The ARO is discussed more fully in Note 16 .
N. Convertible Debt – In accordance with ASC 470, Debt ("ASC 470") the Company records its Convertible Senior Notes at the aggregate principal amount, less discount. We are amortizing the debt discount over the life of the convertible notes as additional non-cash interest expense utilizing the effective interest method. Refer to Note 15 for additional information.
O. 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 collectability is reasonably assured. Contingent rent is recognized when it is earned, based on the achievement of specified performance criteria. Rental payments received in advance are classified as unearned revenue and included as a liability within the Consolidated Balance Sheets. Unearned revenue is amortized ratably over the lease period as revenue recognition criteria are met. Rental payments received in arrears are accrued and classified as Lease Receivable and included in 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 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 whether the contracted capacity is used. For interruptible or volumetric based transportation, revenue is recognized when physical deliveries of natural gas are made at the delivery point agreed upon by both parties.
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. For increasing rate loans, base interest income is recorded ratably over the life of the loan, using the effective interest rate. The net amount of deferred loan origination income and costs are amortized on a straight-line basis over the life of the loan and reported as an adjustment to yield in financing revenue. Participating financing revenues are recorded when specific performance criteria have been met.
P. 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.
Q. 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.
R. Asset Acquisition Expenses – Costs incurred in connection with the research of real property acquisitions not 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. Costs incurred in connection with a business combination are expensed as incurred.
S. Offering Costs – Offering costs related to the issuance of common or preferred stock are charged to additional paid-in capital when the stock is issued.
T. Debt Issuance Costs – Costs incurred for the issuance of new debt are capitalized and amortized into interest expense over the debt term. See Note 14 for further discussion.
U. Distributions to Stockholders – Distributions to both common and preferred stockholders are determined by the Board of Directors. Distributions to common stockholders are recorded on the ex-dividend date and distributions to preferred stockholders are recorded when declared by the Board of Directors.
V. Other Income Recognition Specific policies for the Company’s other income items are as follows:
Net distributions and dividend income from investments – Distributions and dividends from investments are recorded on their ex-dates and are reflected as other income within the accompanying Consolidated Statements of Income. Distributions received from the Company’s investments are generally characterized as ordinary income, capital gains and distributions received from investment securities. The portion characterized as return of capital is paid by our investees from their cash flow from operations. The Company records investment income, capital gains and distributions received from investment securities based on estimates made at the time such distributions are received. Such estimates are based on information available from each company and other industry sources. These estimates may subsequently be revised based on information received from the entities after their tax reporting periods are concluded, as the actual character of these distributions is not known until after the fiscal year end of the Company.
Net realized and unrealized gain (loss) from investments – Securities transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses are reported on an identified cost basis. The Company records investment income and return of capital based on estimates made at the time such distributions are received. Such estimates are based on information available from the portfolio company and other industry sources. These estimates may subsequently be revised based on information received from the portfolio company after their tax reporting periods are concluded, as the actual character of these distributions are not known until after our fiscal year end.
W. 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.
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. It is expected that for the year ended December 31, 2015, and future periods, any deferred tax liability or asset generated will be related entirely to the assets and activities of the Company's TRSs.
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.
X. Recent Accounting Pronouncements – In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("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 was 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 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 Note 3 for further information.
In August 2015, the FASB issued ASU No. 2015-14 "Revenue from Contracts with Customers - Deferral of the Effective Date." The amendments in this update defer the effective date of ASU No. 2014-09 "Revenue from Contracts with Customers", for all entities by one year. ASU No. 2014-09 adds to the FASB ASC by requiring entities to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to customers and provide additional disclosures. As amended, the effective date for public entities is annual reporting periods beginning after December 15, 2017 and interim periods therein. As such, we will be required to adopt the standard in the first quarter of fiscal year 2018. Early adoption is not permitted before the first quarter of fiscal year 2017. ASC 606 may be adopted using either the "full retrospective" approach, in which the standard is applied to all of the periods presented, or a "modified retrospective" approach. The Company is currently evaluating which transition method to use and the potential future impact, if any, the standard will have on the Company's consolidated financial statements and related disclosures. However, we do not expect its adoption to have a significant impact on our consolidated financial statements, as a substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU 2014-09.
In August 2014, the FASB issued ASU No. 2014-15 "Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern", 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 February 2015, the FASB issued ASU No. 2015-02 "Consolidation (Topic 810), Amendments to the Consolidation Analysis." ASU 2015-02 is aimed at asset managers, however, it will also have an effect on all reporting entities that have variable interests in other legal entities. In some cases, consolidation conclusions will change. In other cases, reporting entities will need to provide additional disclosures about entities that currently aren't considered variable interest entities but will be considered VIE's under the new guidance if they have a variable interest in those entities. At the very least, reporting entities will need to re-evaluate their consideration conclusions and potentially revise their documentation. For public companies, ASU No. 2015-02 is effective for annual periods beginning after December 15, 2015 and interim periods within those years using either a retrospective or a modified retrospective approach. Management has evaluated this amendment and does not expect adoption to have a material impact on the Company's consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03 "Interest-Imputation of Interest" to simplify presentation of debt issuance costs. The amendments in this update require debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Then in June 2015, the FASB issued ASU No. 2015-15 "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" to clarify that ASU No. 2015-03 does not address the presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. As a result, an entity may present debt issuance costs related to line-of-credit arrangements as an asset instead of a direct deduction from the carrying amount of the debt. The clarification is effective as of issuance with ASU No. 2015-03 effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Management evaluated this amendment and does not expect adoption to have a material impact on the Company's consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16 "Simplifying the Accounting for Measurement-Period Adjustments." ASU No. 2015-16 requires, for business combinations, that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. ASU No. 2015-16 is effective for fiscal years beginning after December 15, 2015. Management has evaluated this amendment and does not expect adoption to have a material impact on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02 "Leases" which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for fiscal years and interim periods beginning after December 31, 2018. Early adoption is permitted. The new leases standard requires adoption using a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. Management is still in the process of evaluating this amendment.
Leased Properties
LEASED PROPERTIES
LEASED PROPERTIES
Grand Isle Gathering System
On June 23, 2015, we (i) completed a follow-on equity offering of 2,587,500 shares of common stock that generated $73.3 million in proceeds net of underwriting discounts, (ii) completed a new issue of convertible debt in an underwritten public offering that generated $111.3 million in proceeds net of underwriting discounts, and (iii) drew approximately $42 million under our existing Senior Credit Facility. On June 30, 2015, our subsidiary, Grand Isle Corridor, LP ("Grand Isle Corridor"), used the net proceeds from the offerings and the advance under our Senior Credit Facility to close on a Purchase and Sale Agreement to acquire the Grand Isle Gathering System (the "GIGS"), a subsea, midstream pipeline system in the Gulf of Mexico from a subsidiary of Energy XXI Ltd ("EXXI") for $245 million, the assumption of asset retirement obligation liabilities of approximately $12.5 million, asset acquisition costs of approximately $1.9 million and deferred lease costs of approximately $336 thousand, for a total consideration of $259.8 million. Grand Isle Corridor, LP also entered into a long-term triple-net lease agreement relating to the use of the GIGS with Energy XXI GIGS Services, LLC, a wholly owned operating subsidiary of EXXI.
Physical Assets
The GIGS includes 153 miles (unaudited) of offshore pipeline in the Gulf of Mexico that connects to seven producing fields (unaudited), six of which are operated by EXXI and one by ExxonMobil, and includes a 16-acre (unaudited) onshore terminal and saltwater disposal system consisting of four storage tanks (unaudited), a saltwater disposal facility with three injection wells (unaudited), and associated pipelines, land, buildings and facilities. Of the seven oil fields (unaudited) that connect to the Grand Isle Gathering System, four are among the top 15 producing oil fields in the Gulf of Mexico shelf as ranked by total cumulative oil production to date—the West Delta 30, West Delta 73, Grand Isle 16/22 and South Pass 89. As of March 31, 2015, the Grand Isle Gathering System transported approximately 60,000 Bbls/d (unaudited) (18,000 oil (unaudited) and 42,000 water (unaudited)) with total capacity of 120,000 Bbls/d (unaudited). Five other shippers (unaudited) utilize the GIGS for transportation of oil to onshore sales points and transportation of produced water for disposal onshore.    
The asset will be depreciated for book purposes over an estimated useful life of 30 years. The amount of depreciation recognized for the leased property for the years ended December 31, 2015 and 2014, was $4.3 million and $0, respectively.
See Note 4 for further information regarding the Grand Isle Lease Agreement (as defined therein).
Pinedale LGS
Our subsidiary, Pinedale Corridor, LP ("Pinedale LP"), owns a system of gathering, storage, and pipeline facilities (the "Pinedale LGS"), with associated real property rights in the Pinedale Anticline in Wyoming.
Physical Assets
The Pinedale LGS consists of more than 150 miles (unaudited) of pipelines with four (unaudited) 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, 2015, December 31, 2014 and December 31, 2013, was $8.9 million.
See Note 4 for further information regarding the Pinedale Lease Agreement (as defined therein)
Non-Controlling Interest Partner
The Prudential Insurance Company of America ("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 serving as a lender and the administrative agent on behalf of other lenders participating in the credit facility ("KeyBank Term Facility"). The credit facility was amended on December 31, 2015, and will remain in effect through March 30, 2016. The credit facility is secured by the Pinedale LGS. See Note 14 for further information regarding the credit facility.
Portland Terminal Facility
The Portland Terminal Facility is a rail and marine facility adjacent to the Willamette River in Portland, Oregon which is triple-net leased to Arc Terminals Holdings LLC ("Arc Terminals"), an indirect, wholly-owned subsidiary of Arc Logistics Partners LP ("Arc Logistics"). The 39-acre (unaudited) site has 84 tanks (unaudited) with a total storage capacity of approximately 1.5 million barrels (unaudited). 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.
As of December 31, 2015, we completed the funding of 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.
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 the years ended December 31, 2015, December 31, 2014 and December 31, 2013, was $1.2 million, $1.4 million 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
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. Upon termination, the Company received $7.7 million for its undivided interest, resulting in no gain or loss being recorded during the three-month period ended June 30, 2015. For further information regarding the Purchase Agreement with PNM and the PNM Lease Agreement related to the EIP transmission assets, see Note 4.
The EIP transmission assets were utilized by the lessee to move electricity across New Mexico between Albuquerque and Clovis. The physical assets include 216 miles (unaudited) 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 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 on April 1, 2015.
The amount of depreciation expense related to the EIP leased property for the years ended December 31, 2015, December 31, 2014 and December 31, 2013, was $570 thousand, $2.3 million and $2.3 million, respectively.
EIP Leased Property Held for Sale consisted of the following:
EIP Leased Property Held for Sale
 
 
December 31, 2015
 
December 31, 2014
Leased asset
 
$

 
$
14,126,849

Less: accumulated depreciation
 

 
(5,878,933
)
Net leased asset held for sale
 
$

 
$
8,247,916

Leases
LEASES
LEASES
As of December 31, 2015, the Company had three significant leases. The table below displays the impact of the Company's most significant leases on total leased properties and total lease revenues for the periods presented.

As a Percentage of (1)

Leased Properties

Lease Revenues

As of December 31,

For the Years Ended December 31,

2015

2014

2015

2014
 
2013
Pinedale LGS
40.0%

79.2%

42.9%

71.9%
 
88.7%
Grand Isle Gathering System
50.1%


42.3%

 
Portland Terminal Facility
9.6%

17.2%

13.3%

19.0%
 
Public Service of New Mexico (2)

3.1%

1.3%

9.1%
 
11.3%
(1) Insignificant leases are not presented, thus percentages do not sum to 100%.
(2) The Public Service of New Mexico lease terminated on April 1, 2015. See additional discussion of the PNM lease under the heading Lease of Property Held for Sale, below.

Grand Isle Gathering System
Grand Isle Corridor, LP entered into a long-term triple-net lease agreement on June 30, 2015, relating to the use of the GIGS (the “Grand Isle Lease Agreement”) with Energy XXI GIGS Services, LLC (the "EXXI Tenant"). The Grand Isle Lease Agreement has an initial eleven-year term and may be extended for one additional term equal to the lesser of nine years or 75 percent of the expected remaining useful life of the GIGS. The EXXI Tenant’s obligations under the lease agreement are guaranteed by EXXI. During the initial term, the EXXI Tenant will make minimum monthly rental payments that are initially $2.6 million in year one, increase to a maximum of $4.2 million in year seven and decline to $3.5 million in year eleven. In addition, the EXXI Tenant will pay variable rent payments based on a ten percent participation above a pre-defined threshold, which will be calculated monthly on the volumes of EXXI oil that flow through the GIGS, multiplied by the average daily closing price of crude oil for the applicable calendar month. Variable rent will be capped at 39 percent of the total rent for each month. Tangible assets, excluding land, will be depreciated over the 30-year depreciable life of the leased property with associated depreciation expense of approximately $8.6 million annually beginning July 1, 2015 (unaudited).
As of December 31, 2015, and December 31, 2014, approximately $321 thousand and $0, respectively, of net deferred lease costs related to the GIGS are included in the accompanying Consolidated Balance Sheets. The deferred costs are amortized over the 11-year life of the Grand Isle Lease Agreement. For the years ended December 31, 2015, 2014 and 2013, $15 thousand, $0 and $0, respectively was included in amortization expense within the Consolidated Statement of Income.
In view of the fact that EXXI 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 Company's results of operations going forward.
EXXI 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 EXXI can be found on the SEC's website at www.sec.gov (NASDAQ: EXXI). The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of EXXI, but has no reason to doubt the accuracy or completeness of such information. In addition, EXXI 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.
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”), an indirect wholly-owned subsidiary of Ultra Petroleum. The Pinedale Lease Agreement has a fifteen-year initial term and may be extended for additional five-year terms at the sole discretion of Ultra Wyoming. 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). Additionally, the Pinedale Lease Agreement has a variable rent component based on the volume of liquid hydrocarbons and water that flowed through the Pinedale LGS in a prior month, subject to Pinedale LP not being in default under the Pinedale Lease Agreement. For 2015, the quarterly rent increased by $85 thousand to $5.2 million based on the CPI adjustment as specified in the lease terms. Total annual rent may not exceed $27.5 million during the initial fifteen-year term.
As of December 31, 2015, December 31, 2014 and December 31, 2013, approximately $734 thousand, $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 Lease Agreement. For each of the years ended December 31, 2015, December 31, 2014 and December 31, 2013, $61 thousand is included in amortization expense within the Consolidated Statements of Income.
The assets comprising 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. Beginning in December 2012, the real property and land rights are being depreciated over the 26-year life of the related land lease.
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 Company's results of operation going forward.
Ultra Petroleum is currently subject to the reporting requirements 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 (NYSE: UPL). 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 to doubt 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.
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 fifteen-year term, Arc Terminals will make base monthly rental payments as well as variable rent payments based on the volume of liquid hydrocarbons that flowed through the Portland Terminal Facility in the prior month in excess of a designated threshold of 12,500 barrels per day of oil equivalent (unaudited). Variable rent is capped at 30 percent of total rent each month, which would be the equivalent of the Portland Terminal Facility’s expected throughput capacity.
Base rent as of December 31, 2015, increased to $513 thousand per month due to completion of $10.0 million in planned construction projects at the Portland Terminal Facility. For the years ended December 31, 2015, 2014 and 2013, $946 thousand, $241 thousand and $0, respectively, in incremental base rent was received due to construction completed as of the end of each year.
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 (NYSE: ARCX). 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.
The future contracted minimum rental receipts for all net leases as of December 31, 2015, are as follows:
Future Minimum Lease Receipts
Years Ending December 31,
 
Amount
2016
 
$
59,607,929

2017
 
60,931,762

2018
 
61,139,762

2019
 
63,468,195

2020
 
70,629,654

Thereafter
 
451,794,133

Total
 
$
767,571,435


Lease of Property Held for Sale
Public Service Company of New Mexico ("PNM")
The EIP leased asset held for sale was 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 lease payments under the PNM Lease Agreement were 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 was amortized as a reduction to lease revenue over the 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 $7.7 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, 2015, December 31, 2014 and December 31, 2013, revenue of $638 thousand, $2.6 million and $2.6 million respectively, is included in lease revenue within the Consolidated Statements of Income.
Mogas Acquisition
MOGAS ACQUISITION
MOGAS TRANSACTION
On November 24, 2014, our wholly owned taxable REIT subsidiary, 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 (unaudited) interstate natural gas pipeline system in and around St. Louis and extending into central Missouri. The pipeline system, regulated by 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 (unaudited) and delivers that natural gas at 22 delivery points (unaudited). UPS owns 10.28 acres of real property (unaudited) 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 2,990,000 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 accounted 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 final and complete. The Company's assessment of the fair values and the allocation of purchase price to the identified tangible and intangible assets is its best estimate of fair value. 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.
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. 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.
Pro Forma Financial Information (unaudited)
For comparative purposes, 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:
 
For the Year Ended
 
December 31, 2014
 
December 31, 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
$
1.37

 
$
1.03

Weighted Average Shares of Common Stock Outstanding:
 
 
 
Basic and Diluted (5)
9,236,345

 
7,819,879

(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.
Financing Notes Receivable
FINANCING NOTES RECEIVABLE
FINANCING NOTES RECEIVABLE
Black Bison Financing Notes Receivable
On March 13, 2014, our wholly-owned subsidiary, 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 WS Loan") to finance the acquisition and development of real property to 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 Black Bison WS 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, on substantially the same terms (the "TRS Loan" and, together with the Black Bison WS Loan, as amended, the "Black Bison Loans"). The purpose of the increase in the secured financing was to fund the acquisition and development of real property and related equipment to 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 Black Bison Loans.
Interest initially accrued on the outstanding principal amount of both Black Bison Loans at an annual base rate of 12 percent, which base rate increases 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 Black Bison Loans was set to 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 Black Bison Loans mature on March 31, 2024, and were set to amortize by quarterly payments beginning on March 31, 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 Black Bison Loans are also guarantied by all affiliates of Black Bison WS and further secured by all assets of those guarantors.
Due to reduced drilling activity in Black Bison WS’s area of operations, during the first quarter of 2015 Black Bison WS requested, and the Company granted, a waiver of certain financial covenants. Black Bison WS and its affiliates did not make the principal payments to the Company that were scheduled to begin on March 31, 2015. As a result, we entered into an agreement with Black Bison WS, effective June 17, 2015 (the "June Forbearance Agreement"), as follows:
We agreed to forbear through August 15, 2015, from exercising any remedies relating to certain existing defaults. A reduced principal and interest payment schedule was applied (as described below). The forbearance period, which terminated on August 15, 2015, was subject to compliance by Black Bison WS and its affiliates with additional conditions set forth in the agreement and to the non-occurrence of any defaults under the Loans other than the existing defaults.
We agreed to accept temporarily reduced interest payments under the Black Bison Loans in the maximum amount of $50 thousand per month for June and July of 2015, with such maximum amount increasing to $75 thousand per month for August through December 2015 (subject to the continuation of the forbearance period in the Company’s sole discretion). Interest that accrues but is not payable pursuant to these terms during the forbearance period was to be added to the principal of the Black Bison Loans. We accrued additional interest from the date on which such interest otherwise would have been payable, and shall be payable in full upon termination of the forbearance period. No principal payments were required during the forbearance period. Black Bison WS also agreed to a general release of any prior claims related to the Black Bison Loans or the forbearance and to reimburse the Company for its additional expenses incurred in connection with granting the forbearance agreement.
When the June Forbearance Agreement expired on August 15, 2015, we entered into a new forbearance agreement (the “August Forbearance Agreement”) which includes the following material terms:
We agreed to continue to forbear from exercising any remedies relating to the existing defaults during a new forbearance period, which was extended to the earlier to occur of (a) thirty days after we give Black Bison WS notice of the termination of the August Forbearance Agreement and (b) June 30, 2016, subject again to compliance by Black Bison WS and its affiliates with additional conditions set forth in the agreement and to the non-occurrence of any defaults under the Black Bison Loans other than the existing defaults.
We agreed to not require any principal or interest payments on the indebtedness during the period in which the August Forbearance Agreement is in effect. Interest that accrues but is not payable pursuant to these terms during the forbearance period will be added to the principal of the Black Bison Loans, will accrue additional interest from the date on which such interest otherwise would have been payable, and shall be payable in full upon termination of the forbearance period under the August Forbearance Agreement.
The August Forbearance Agreement clarified that the holders of the outstanding equity securities of Black Bison and its affiliates that are pledged as security for the Black Bison Loans cannot vote such securities for the purpose of approving any election to file for bankruptcy protection or related actions during the forbearance period.
Drilling activity in the Black Bison area of operations has continued to decline. Due to these market conditions the Company has determined a provision for loan loss with respect to the Black Bison Loans should be reflected for financial reporting purposes. The 2015 income statement reflects a Provision for Loan Loss of $13.8 million, which includes $14 thousand in deferred origination income, net of deferred origination costs, and $355 thousand of interest accrued under the Forbearance agreement up to the second quarter of 2015.
Financing revenue as presented in the 2015 financial statements does not reflect any financing revenue from the notes for the Black Bison Loans in the third and fourth quarters. These notes are considered by the Company to be on non-accrual status and have been reflected as such in the financial statements. As a result, under GAAP we no longer recognize Financing revenue on our Black Bison Loans. As of December 31, 2015, the net note receivable from Black Bison WS is $2.0 million.
As a condition to the Black Bison WS 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. Corridor Bison capitalized approximately $13 thousand in asset acquisition expenses in relation to the Warrant. The exercise price of the Warrant was $3.16 per unit. The exercise price increases at a rate of 12 percent per annum.
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. CorEnergy BBWS capitalized $25 thousand in asset acquisition expenses in relation to the Warrant. Including capitalized asset acquisition costs, the Company paid approximately $123 thousand for the Warrant, which is recorded at a fair value of $0 as of December 31, 2015. The amount paid was determined to be the current value of the incremental amount that could be purchased under the Amended and Restated Warrant at the date of purchase. Furthermore, the warrant qualifies as a derivative, with all changes in fair value reflected in the consolidated statements of income and comprehensive income in the current period.
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”), a wholly-owned subsidiary of Four Wood Energy, pursuant to which Four Wood Corridor made a loan to SWD Enterprises for $4.0 million. Concurrently, our TRS, Corridor Private 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 from Four Wood Corridor, interest initially accrues on the outstanding principal at an annual base rate of 12 percent. For the TRS loan from Corridor Private, interest initially accrues 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 guaranteed by all affiliates of SWD Enterprises.
SWD Enterprises is required through the loan agreement to comply with certain financial covenants. During 2015, the Company was made aware of an event of default for failure to comply with the Tangible Net Worth and Coverage Ratio covenant for the reporting period ending June 30, 2015. SWD Enterprises has continued to make regular interest payments on the term loan, has raised equity, and made a prepayment of principal on the REIT loan. SWD Enterprises is not due to make principal payments until first quarter 2016. As a result of the equity raise, the Company agreed to amend the terms of the loan agreement to update the financial covenants to a level that CORR believes SWD Enterprises will be able to meet. The amended terms of the loan agreement do not provide any concessions for interest rate terms or maturity of the credit facility. The amended terms did require SWD Enterprises to make a $100 thousand prepayment of principal on the REIT loan. The Company believes the notes receivable with SWD Enterprises are fully collectible as of December 31, 2015.
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 the level of economic disproportionality between the Company and the other partner(s).
Consolidated VIEs
As of December 31, 2015, the Company does not have any investments in VIEs that qualify for consolidation.
Unconsolidated VIE
At December 31, 2015, the Company's recorded investment in Black Bison WS and Intermediate Holdings, collectively a VIE that is unconsolidated, was $2.0 million. The Company's maximum exposure to loss associated with the investment is limited to the Company's outstanding notes receivable, discussed in Note 6, totaling $2.0 million and $15.9 million as of December 31, 2015, and December 31, 2014, respectively. 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, 2015, and 2014, are as follows:
Deferred Tax Assets and Liabilities
 
 
December 31, 2015
 
December 31, 2014
Deferred Tax Assets:
 
 
 
 
Net operating loss carryforwards
 
$
543,116

 
$
679,692

Net unrealized loss on investment securities
 
251,539

 

Cost recovery of leased and fixed assets
 

 
1,042,207

Loan Loss Provision
 
1,257,436

 

Other loss carryforwards
 
1,833,240

 

Sub-total
 
$
3,885,331

 
$
1,721,899

Deferred Tax Liabilities:
 
 
 
 
Basis reduction of investment in partnerships
 
$
(2,159,058
)
 
$
(2,842,332
)
Net unrealized gain on investment securities
 

 
(142,154
)
Cost recovery of leased and fixed assets
 
(119,297
)
 

Sub-total
 
(2,278,355
)
 
(2,984,486
)
Total net deferred tax asset (liability)
 
$
1,606,976

 
$
(1,262,587
)

For the year ended December 31, 2015, the total deferred tax asset presented above relates to 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. 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, 2015, 2014, and 2013, 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 December 31,
 
 
2015
 
2014
 
2013
Application of statutory income tax rate
 
$
3,630,325

 
$
2,375,903

 
$
2,608,151

State income taxes, net of federal tax (benefit)
 
(134,597
)
 
(47,731
)
 
273,174

Federal Tax Attributable to Income of Real Estate Investment Trust
 
(5,189,849
)
 
(2,607,207
)
 
(927,254
)
Other
 
(253,432
)
 
53,472

 
995,447

Total income tax expense (benefit)
 
$
(1,947,553
)
 
$
(225,563
)
 
$
2,949,518


Total income taxes are computed by applying the federal statutory rate of 35 percent plus a blended state income tax rate. Corridor Public Inc. and Corridor Private Inc. had a blended state rate of approximately 2.82 percent for the year ended December 31, 2015, 3.92 percent for the year ended December 31, 2014 and 3.11 percent for the year ended December 31, 2013. CorEnergy BBWS Inc. does not record a provision for state income taxes because it operates only in Wyoming, which does not have state income tax. Because Mowood Corridor Inc. and Corridor MoGas Inc. primarily only operate in the state of Missouri, a blended state income tax rate of 5 percent was used for the operations of both TRSs for the years ended December 31, 2015, 2014, and 2013. For year ended December 31, 2015, all of the income tax benefit presented above relates to the assets and activities held in the Company's TRSs. The components of income tax benefit include the following for the periods presented:
Components of Income Tax Expense (Benefit)
 
 
For the Years Ended December 31,
 
 
2015
 
2014
 
2013
Current tax expense
 
 
 
 
 
 
Federal
 
$
781,941

 
$
3,456,858

 
$
(7,139
)
State (net of federal tax benefit)
 
140,069

 
387,079

 
20,613

Total current tax expense
 
922,010

 
3,843,937

 
13,474

Deferred tax expense (benefit)
 
 
 
 
 
 
Federal
 
(2,594,897
)
 
(3,634,689
)
 
2,683,483

State (net of federal tax benefit)
 
(274,666
)
 
(434,811
)
 
252,561

Total deferred tax expense (benefit)
 
(2,869,563
)
 
(4,069,500
)
 
2,936,044

Total income tax expense (benefit), net
 
$
(1,947,553
)
 
$
(225,563
)
 
$
2,949,518


As of December 31, 2014 the TRSs had a net operating loss of $894 thousand. For the year ended December 31, 2015, the TRSs incurred a total net operating loss of approximately $478 thousand, resulting in a total net operating loss of approximately $1.4 million as of December 31, 2015. The net operating loss may be carried forward for 20 years. If not utilized, this net operating loss will expire as follows: $90 thousand, $804 thousand, and $478 thousand in the years ending December 31, 2033, 2034, and 2035 respectively. The amount of deferred tax asset for net operating losses as of December 31, 2015, includes amounts for the year ended December 31, 2015. 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 (Unaudited)
 
 
December 31, 2015
 
December 31, 2014
Aggregate cost for federal income tax purposes
 
$
4,750,252

 
$
4,218,986

Gross unrealized appreciation
 
5,133,908

 
7,436,696

Gross unrealized depreciation
 
(97,500
)
 
 
Net unrealized appreciation
 
$
5,036,408

 
$
7,436,696


The Company provides the following tax information to its common stockholders pertaining to the character of distributions paid during tax years 2013, 2014, and 2015. For a stockholder that received all distributions in cash during 2015, 72 percent (unaudited) will be treated as ordinary dividend income and 28 percent (unaudited) will be treated as return of capital. Of the ordinary dividend income, 3 percent (unaudited) will be treated as qualified dividend income. The per share characterization by quarter is reflected in the following tables:
2015 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
02/13/2015
 
02/11/2015
 
02/27/2015
 
$
0.6500

 
$
0.4680

 
$
0.0126

 
$

 
$
0.1820

05/15/2015
 
05/13/2015
 
05/29/2015
 
0.6750

 
0.4860

 
0.0131

 

 
0.1890

08/17/2015
 
08/13/2015
 
08/31/2015
 
0.6750

 
0.4860

 
0.0131

 

 
0.1890

11/13/2015
 
11/10/2015
 
11/30/2015
 
0.7500

 
0.5400

 
0.0146

 

 
0.2100

Total 2015 Distributions
 
$
2.7500

 
$
1.9800

 
$
0.0534

 
$

 
$
0.7700

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
01/13/2014
 
01/09/2014
 
01/23/2014
 
$
0.6250

 
$
0.4640

 
$
0.2250

 
$

 
$
0.1610

05/14/2014
 
05/12/2014
 
05/22/2014
 
0.6450

 
0.4790

 
0.2320

 

 
0.1660

08/15/2014
 
08/13/2014
 
08/29/2014
 
0.6500

 
0.4825

 
0.2335

 

 
0.1675

11/14/2014
 
11/12/2014
 
11/28/2014
 
0.6500

 
0.4825

 
0.2335

 

 
0.1675

Total 2014 Distributions
 
$
2.5700

 
$
1.9080

 
$
0.9240

 
$

 
$
0.6620

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
 
$
0.6250

 
$
0.6250

 
$
0.6250

 
$

 
$

06/28/2013
 
06/26/2013
 
07/05/2013
 
0.6250

 
0.1835

 
0.1835

 

 
0.4415

09/30/2013
 
09/26/2013
 
10/04/2013
 
0.6250

 

 

 

 
0.6250

Total 2013 Distributions
 
$
1.8750

 
$
0.8085

 
$
0.8085

 
$

 
$
1.0665


The Company provides the following tax information to its preferred stockholders pertaining to the character of distributions paid during the 2015 tax year. For a stockholder that received all distributions in cash during 2015, 100 percent (unaudited) will be treated as ordinary dividend income and 0 percent (unaudited) will be treated as return of capital. Of the ordinary dividend income, 3 percent (unaudited) will be treated as qualified dividend income. The per share characterization by quarter is reflected in the following table:
2015 Preferred Stock Tax Information (unaudited)
Record Date
 
Ex-Dividend Date
 
Payable Date
 
Total Distribution per Share
 
Total Ordinary Dividends