CorEnergy Infrastructure Trust, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Leased Properties and Leases

Leased Properties and Leases

12 Months Ended

Dec. 31, 2016

As of December 31, 2016, the Company had three significant leased properties located in Oregon, Wyoming, Louisiana, and the Gulf of Mexico, which are leased on a triple-net basis to major tenants, described in the table below. These major tenants are responsible for the payment of all taxes, maintenance, repairs, insurance, and other operating expenses relating to the leased properties. The long-term, triple-net leases generally have an initial term of 11 to 15 years with options for renewals. Lease payments are scheduled to increase at varying intervals during the initial terms of the leases. The following table summarizes the significant leased properties, major tenants and lease terms:



Summary of Leased Properties, Major Tenants and Lease Terms
Property	Grand Isle Gathering System	Pinedale LGS⁽¹⁾	Portland Terminal Facility
Location	Gulf of Mexico/Louisiana	Pinedale, WY	Portland, OR
Tenant	Energy XXI GIGS Services, LLC	Ultra Wyoming LGS, LLC	Arc Terminals Holdings LLC
Asset Description	Approximately 153 miles of offshore pipeline with total capacity of 120 thousand Bbls/d, including a 16-acre onshore terminal and saltwater disposal system	Approximately 150 miles of pipelines and four central storage facilities	A 42-acre rail and marine facility property adjacent to the Willamette River with 84 tanks and total storage capacity of approximately 1.5 million barrels
Date Acquired	June 2015	December 2012	January 2014
Initial Lease Term	11 years	15 years	15 years
Renewal Option	equal to the lesser of 9-years or 75 percent of the remaining useful life	5-year terms	5-year terms
Current Monthly Rent Payments	7/1/15 - 6/30/16: $2,625,417 7/1/16 - 6/30/17: $2,826,250	$1,723,833⁽²⁾	$513,355
Estimated Useful Life	27 years	26 years	30 years
(1) Non-Controlling Interest Partner, 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, a wholly-owned subsidiary of the Company, holds the remaining 81.05 percent of the economic interest.
(2) Monthly rent payments will increase to $1,741,933 beginning January 1, 2017.

The future contracted minimum rental receipts for all leases as of December 31, 2016, are as follows:



Future Minimum Lease Receipts ⁽¹⁾
Years Ending December 31,	Amount
2017	$	61,201,298
2018	61,356,965
2019	63,724,621
2020	70,890,429
2021	77,071,774
Thereafter	376,628,521
Total	$	710,873,608
⁽¹⁾ Future minimum lease receipts include base rents for the Portland Terminal Facility through its initial 15-year term. The lessee has a purchase option on the facility beginning in February 2017, which it can exercise with 90-days notice, as well as lease termination options on the fifth and tenth anniversaries of the lease. If exercised, the purchase option and termination options are subject to additional payment provisions and termination fees prescribed under the lease.

The table below displays the Company's individually significant leases as a percentage of 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,
	2016	2015	2016	2015	2014
Pinedale LGS	39.8%	40.0%	30.4%	42.9%	71.9%
Grand Isle Gathering System	50.0%	50.1%	59.8%	42.3%	—
Portland Terminal Facility	9.9%	9.6%	9.7%	13.3%	19.0%
Public Service of New Mexico⁽²⁾	—	—	—	1.3%	9.1%
(1) Insignificant leases are not presented; thus percentages may not sum to 100%.
(2)The Public Service of New Mexico lease terminated on April 1, 2015.

The following table reflects the depreciation and amortization included in the accompanying Consolidated Statements of Income associated with our leases and leased properties:



	For the Years Ended December 31,
	2016		2015		2014
Depreciation Expense
GIGS	$	8,605,506	$	4,317,769	$	—
Pinedale	8,869,440		8,869,440		8,869,445
Portland Terminal Facility	843,084		1,235,369		1,390,236
Eastern Interconnect Project	—		569,670		2,278,680
United Property Systems	32,424		29,700		3,011
Total Depreciation Expense	$	18,350,454	$	15,021,948	$	12,541,372
Amortization Expense - Deferred Lease Costs
GIGS	$	30,564	$	15,130	$	—
Pinedale	61,368		61,368		61,369
Total Amortization Expense - Deferred Lease Costs	$	91,932	$	76,498	$	61,369
ARO Accretion Expense
GIGS	$	726,664	$	339,042	$	—
Total ARO Accretion Expense	$	726,664	$	339,042	$	—

The following table reflects the deferred costs that are included in the accompanying Consolidated Balance Sheets associated with our leased properties:



	December 31, 2016		December 31, 2015
Net Deferred Lease Costs
GIGS	$	290,447	$	321,011
Pinedale	673,085		734,454
Total Deferred Lease Costs, net	$	963,532	$	1,055,465

Substantially all of our tenants' financial results are driven by exploiting naturally occurring oil and natural gas hydrocarbon deposits beneath the Earth's surface. As a result, our tenants' financial results are highly dependent on the performance of the oil and natural gas industry, which is highly competitive and subject to volatility. During the terms of our leases, we monitor credit quality of our tenants by reviewing their published credit ratings, if available, reviewing publicly available financial statements, or reviewing financial or other operating statements, monitoring news reports regarding our tenants and their respective businesses, and monitoring the timeliness of lease payments and the performance of other financial covenants under their leases.

Ultra Petroleum

On April 29, 2016 Ultra Petroleum, filed a voluntary petition to reorganize under Chapter 11. The filing included Ultra Wyoming LGS, LLC, the operator of the Pinedale LGS and tenant of the Pinedale Lease Agreement. The bankruptcy filing of both the guarantor, Ultra Petroleum, and the tenant and circumstances prompting the filing constituted defaults under the terms of the Pinedale Lease Agreement. The bankruptcy filing serves as a stay of the Company's ability to exercise remedies for certain of those defaults. However, Section 365 of the Bankruptcy Code requires Ultra Wyoming to comply on a timely basis with many provisions of the Pinedale Lease Agreement, including the payment provisions. The only exception to that requirement would be if Ultra Wyoming had taken specific action to reject the Pinedale Lease Agreement. During the fourth quarter of 2016, CorEnergy and Ultra Wyoming agreed to, and completed, mediation, which resulted in Ultra Wyoming's agreement to assume the Pinedale lease without amendment. This lease assumption was approved by the bankruptcy court on November 28, 2016.

Ultra Petroleum is currently subject to the reporting requirements under the Exchange Act and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. While the SEC, under certain circumstances, may accept reporting on a modified basis from an issuer involved in a bankruptcy proceeding, the Company currently has no indication that Ultra Petroleum has requested or intends to request such relief. Its stock is currently trading on the OTC Markets (OTC Pink: UPLMQ). Other SEC filings can be found at www.sec.gov (UPLMQ) or at www.otcmarkets.com (UPLMQ). 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. None of the information in the public reports of Ultra Petroleum that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.

EXXI

On April 14, 2016, Energy XXI and substantially all of its directly and indirectly owned subsidiaries filed a voluntary petition to reorganize under Chapter 11, after reaching an agreement with certain creditors to provide support for a restructuring of its debt. The bankruptcy filing of Energy XXI, the guarantor of the Grand Isle Lease Agreement, and its failure to make interest payments to its creditors within the applicable cure period, would have constituted defaults under the terms of the Grand Isle Lease Agreement. However, to facilitate post-filing financing arrangements between the EXXI Debtor Group and its lenders, the Company provided a conditional waiver to certain remedies available to it as a result of these non-monetary defaults. EXXI Tenant did not file for bankruptcy. Therefore, its obligations under the Grand Isle Lease Agreement were not subject to the proceedings which affected the EXXI Debtor Group and all scheduled lease payments remained current throughout the proceedings. On December 30, 2016, EXXI announced its emergence from Chapter 11 Bankruptcy. The succeeding company is named Energy XXI Gulf Coast, Inc.

EXXI has historically been subject to the reporting requirements under the Exchange Act and required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. Following emergence from bankruptcy, the succeeding company has continued to file Exchange Act reports with the SEC as well. Its SEC filings can be found at www.sec.gov (historical - EXXI; successor - Energy XXI Gulf Coast, Inc.). 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. None of the information in the public reports of EXXI that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.

Arc Logistics

Arc Logistics is currently subject to the reporting requirements of the Exchange Act and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. The audited financial statements and unaudited financial statements of Arc Logistics can be found on the SEC's web site at www.sec.gov (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.

Lease of Property Held for Sale

Public Service Company of New Mexico ("PNM")

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. 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. Annual amortization of the intangible lease asset totaling $73 thousand for the year ended December 31, 2015 and $292 thousand for the year ended December 31, 2014 is reflected in the accompanying Consolidated Statements of Income as a reduction to lease revenue. These same amounts are included in Amortization expense in the accompanying Consolidated Statements of Cash Flows.

- Definition

The entire disclosure for lessor entity's leasing arrangements for operating, capital and leveraged leases.

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