CorEnergy's Fiscal Year 2018 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Lesley Schorgl. Thank you. Please go ahead.

Thank you for joining CorEnergy Infrastructure Trust fiscal year 2018 earnings call. I am joined today by David Schulte, Chairman, President and CEO. As a reminder, the presentation materials for this call, as well as information included in our press release issued Wednesday and an audio replay of this conference call will be available on CorEnergy's website. The statements made during the course of this presentation that are not purely historical maybe forward-looking statements and are subject to the Safe Harbor protection, available under the applicable securities laws. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in our filings with the SEC. These documents are available on the Investor Relations section of our website. We do not update our forward-looking statements. Reconciliations between GAAP and non-GAAP results, which we discuss on this call, can be found in our related earnings release and 10-K filing. Dave Schulte, will now speak to you about CorEnergy's 2018 and our outlook for the year ahead.

Thank you, Lesley. 2018 was a year of improving fundamentals in our portfolio and strengthening of our balance sheet. We've now paid 24 consecutive quarterly dividends as a real estate investment trust or REIT, prioritizing stability with potential for growth over the long-term. We've accomplished this dividend consistency against the backdrop of energy market volatility movement or race by the Fed and changes in our tenant mix. We believe your management team continues to deliver on the promises of the infrastructure asset class. ON Slide 4, we have a brief overview of our portfolio. The tenant at our Grand Isle Gathering System and the Gulf of Mexico is under new ownership probably its acquisition by Cox Oil during the fourth quarter with our lease remaining in place following the purchase. Cox is an experienced offshore operator and we view the acquisition favorably. For Ultra Petroleum use of the Pinedale Liquids Gathering System in Wyoming we received over $4 million in participating rents in 2018. Our attention is to utilize these rents for redeployment and new assets or repayment of debt as they're not guaranteed to continue in the future. Ultra has taken debt exchanges to strengthen its balance sheet and has stated its intention to continue growing to maintain production. Last May MoGas filed a rate case with the FERC which remains ongoing. The requested rates of approximately $20 million annually went into effect December 1. However, those rates will be subject to a potential refund upon final outcome of the case. The Omega Pipeline continues to identify projects under its utility energy services contract at Fort Leonard Wood in South Central Missouri. A separate initiative in Omega includes rerouting a pipeline to accommodate the construction of a hospital, which could produce incremental revenues once completed. Finally we sold the Portland Terminal to its tenant, Zenith Energy at the end of December. We purchase that asset in January 2014 for $42 million and then completed $10 million upgrades in the following years, the sale price of $61 million which didn't include Cor's remaining interest in the Joliet Terminal in Illinois provided an overall return consistent with our expectations. We're pleased with the outcome for this asset and that we were able to be a constructive partner for Zenith Energy. Moving on to Slide 5. CorEnergy has engaged in a number of transactions, which will have an ongoing effect on our company's performance, we wanted to pause and provide key changes you'll be seeing on a balance sheet and income statement on an annual basis going forward. The sale of the Portland terminal will result in a roughly $6.2 million reduction in lease revenue, which is partially offset by declining depreciation expense of 1.2 million. Our 10-K balance sheet reflects the effects of the sale of Portland including the decrease in leased property of 52 million less accumulated depreciation of 6. The 61 million generated from the sale included cash and a $5 million note, which has since been paid off in January. CorEnergy has already begun using the sale proceeds to stabilize the dividend including using a portion for the exchange of our 7% convertible notes, which was set to mature in June of next year. In mid-January CorEnergy exchanged approximately 43.8 million of face value of these bonds or 19.8 million of cash including interest and 837,000 additional common shares. We anticipate this will save us approximately 3 million annually in interest expense, which would be offset by dividends declared and paid on those newly issued shares. At the current $3 annual dividend rate, this would be approximately 2.5 million of additional dividends. Our management team will see a decline of approximate $200,000 associated with cash used for the change. Finally we repurchased 4.5 million of par value 7.375% preferred equity using participating rents from the Pinedale LGS. But this could save Cor approximately 330,000 in annual dividend payments going forward. And many of you are probably wondering how these transactions will affect our dividend paying capacity, which is addressed on the next slide. As you may recall, CorEnergy targets an AFFO to dividend ratio of 1.5 times, which we believe adequately reserves for the reinvestment of new assets and debt repayment which are necessary steps to maintain our long-term earnings and dividend paying capacity. As shown in the chart, our 2018 AFFO per share adjusted for the GAAP accounting treatment of low gas revenue discussed previously is just below our target range. However, given the effect of the transactions we discussed in the prior slide we will see a decline in AFFO of approximately $0.51 going forward due to the sales of Portland offset by approximately $0.28 in saved interest from our deleveraging initiatives. All else constant this results in an adjusted AFFO approximately $4.14 per share, or 1.4 times AFFO to our $3 dividend. So how do we plan to get closer to our target of 1.5.We believe remaining gap can be adequately covered by an investment in an income generating asset or from further deleveraging of the balance sheet through continued repurchase of preferred equity or convertible debt at attractive market prices. And while you're aware that we cannot guarantee any one of these specific transactions will occur we could take any of these actions or combination of them in order to move closer toward AFFO to dividend coverage target. On slide 7 we've illustrated the effects of the January deleveraging transactions on our balance sheet and liquidity metric. While important sale is reflected in our year-end financial statements the actions we've taken in early 2019 moved our total debt to total capitalization ratio from 25% down to 18% and our preferred equity to total equity ratio of 28%, down to 26%. So we remain well below both of our target leverage levels. Our bond based revolver availability did decline with a sale of Portland remained significant at 123 million and adjusted for the convertible debt exchange where we used some cash we have just under $55 million of cash left providing us with an adjusted total liquidity of 177 million at year-end to pursue acquisitions. And before discussing our outlook for 2019, we wanted to revisit the values of infrastructure investing, which has continued to grow and investor awareness and popularity over the last several years. Historically reserved for the private market many different forms of publicly listed vehicles including REITs have expanded access to investors who benefit from the liquidity, low volatility of performance and downside protection of publicly listed infrastructure assets. As you can see in the charts, diversified infrastructure companies as a group have experienced lower volatility than MLPs during a period of relatively high risk in the oil markets. The group is also generated a higher level of dividend stability and growth over the 5-year period measured than MLPs, which have actually cut distributions in the sample study by CBRE. Cor's disciplined investment criteria, which has remained largely the same since before our transition to a REIT in 2013, reflects those attractive characteristics, which you can see on the next slide. On slide 9, we listed characteristics which are already demonstrated in our current portfolio, and which were at the heart of our underwriting process for new business. So while we are poised for growth and have been for some time now, our discipline criteria will keep us from growth just for growth sake. In 2018, we again did multiple deep dive reviews of assets for potential acquisitions and had many more initial asset reviews. Two have those transactions remain in our due-diligence process and the others resulted in either valuations differences or lost bids in auction processes. While we did not complete any acquisitions, we did expand our understanding of which assets best fit our business model. We also deepened relationships with several investment banking teams as well as potential asset sellers and operators. Our opportunities have expanded as upstream operators continue to be conservative in their capital allocation strategies. Those assets we saw in 2018, as well as those currently under review remain primarily pipelines and storage terminals diversified across various geographies, as well as commodity types. In 2019, we're again targeting one to two deals this year in the $50 million to $250 million size range. We've covered a lot of ground today and I'd be happy to open up the call for questions.

Thank you. And I'll be a conducing question-and-answer session. [Operator Instructions] Your first question comes from the line of Barry Oxford with D.A. Davidson.

Dave, could you talk a little more about those two transactions that you alluded to that you're in the process of, if, let's say one is you just started a conversation and 10 is documents are out for signatures, where would you kind of place yourself in the process of this transaction, two transaction states that you alluded to?

For the two we alluded to we're probably at the 5 mark. But for another 10 or so we're at the one and two stage where we've got conversations underway, indications of interest and some preliminary review of financial information. So the front end of our funnel is very robust right now. We've got two that are further along.

And Dave you mentioned that the upstream operators are remaining conservative but I think one can make an argument that the price of oil is okay, it's not great, it's not 70 bucks but in the $50 range it's okay. So are we going to see more of these guys wanting to engage in activity and therefore they would need access to capital of which you guys can provide them in the form of sale lease-backs?

Well they've all got a larger drilling opportunities than what they're enabling to budget for the year and therefore they're constraining their CapEx activities to live within their means. And what we can do for them is enable them to take an existing embedded assets, it's already in their portfolio and sell it or redeploy those that are still within their means. But they can pursue incremental projects that they may not be describing in their annual budgets. And that's our messaging to these companies, we attend a lot of conferences where we have a chance to interact with C suite level oil and gas executives and describe that process to them and we've got several interested parties at sort of an earlier stage of the, of your 1 to 10 ladder of investigation.

One or more of these companies kind of putting their foot on the accelerator when it comes to kind of get going on these types of CapEx projects?

Well, the CapEx process is a lengthy one for these companies that requires a lot of planning and commitments of dollars forward to obtain drilling rigs, resources, water availability for fracing and hiring needs. And so what we need to be able to do is be part of their advanced planning process and not expect someone in the middle of their cycle to change direction dramatically. But it is such an awareness process, Barry, as much as anything that we can be at the right place at the right time for somebody to consider how we can be helpful to their CapEx opportunity set.

Right. So I guess we're kind of part of their process and it might be, something might be two or three years in the making and then it kind of comes to fruition. Is that a way to think about it?

That's a very good way to think about it. The gestation process of all of our leads is fairly lengthy for that reason. And along the way the companies experience their own challenges with commodity price changes, lending, borrowing base redeterminations and potential acquisitions or divestitures of additional properties. So these are very dynamic businesses and we just are trying to be prepared to respond to what we think are opportunities in the market. Both affirmatively we're out suggesting to people that we would be a good solution as well as receiving inquiry from them.

Okay, great. Thanks Dave. Appreciate it.

Okay.

Thank you. [Operator Instructions] Our next question from the line of Michael Zuk with Oppenheimer.

Good afternoon Dave.

Good afternoon.

Can you give us a little more color on the status of the Omega Pipeline projects? And I have a follow-up on MoGas.

Well Omega is, the customer there is the US Department of Defense and it took quite a while for us to get selected in their evaluation process or energy efficiency projects. We've got a big partner there with us scoping our projects to present to the DoD they then go through their review process and prioritization. And it's just not a fast process, but we're exclusive in there and there's things to do. So we do have upbeat sense around the opportunity there. We did mention that there's a rerouting of some pipeline activity. So that's unpredicted. But it does require us to go do more work with our existing pipeline. And that tends to offer a margin opportunity as well. So we're very confident in the Omega relationship we have and the opportunity set.

And then with regard to the MoGas pipeline, would it require additional capital expenditures to extend the pipeline if we could lock in some customers. I mean, how would that work?

Well, we're always aware and trying to be aware of industrial demand along our pipeline. Usually those customers are working with their local LDC to get access to gas. But it is possible and in the past, we have been contacted directly by larger individual customers, say, a manufacturing facility that would like to tie directly into the pipeline. We don't have anything like that in front of us today. But that could result in additional capital being spent in and volumes on our pipeline. Yes.

Do we have any ongoing marketing opportunities or efforts with regard to the MoGas pipeline? Are we are we waiting for customers to potentially come to us.

You may recall, we disclosed about a year ago that we had a very active process to try to mitigate the adverse impacts of the Spire pipeline renegotiation with Liquid which led to the rate case. And that before we entered the rate case, we were pretty aggressive about trying to find all incremental customers, we were not able to find any, again most of those were tied into their local distribution companies as their primary source of gas. And we, so we are often out prospecting affirmatively. But we've just came through a process where we did and made our potential customers aware that we were -- we had extra availability and had no take up on that.

For future acquisitions are you leaning more towards pipeline infrastructure or terminal infrastructure?

Most of the interests that we're seeing today is pipeline related. So it's very similar to our existing assets footprint.

So hopefully you'll be able to close one or two transactions this year and get back on track, so far though you've done what you said you were going to do, and we can't ask much more than that. Appreciate all your efforts.

Thank you.

Thank you. Our next question comes from the line of Selman Akyol with Stifel.

Thank you, good afternoon. Couple of quick ones for me. Can you just talk about a little bit where you are in the rate case when you'd expect settlement talks to begin and maybe when this whole thing that you can barring those settlement talks or no successful outcome there when the rate case would wrap up?

Well, we're currently in a settlement phase of the rate case, which typically would come to an agreement between the parties that is under some jurisdiction or oversight by the judge and we can't predict whether the other parties involved are going to come to agreement and there are multiple other parties. However, we're prepared and we were prepared when it filed to enter into the next phase, which would be starting over with the proposed rates and entering into a more formal process that is beyond post the settlement discussions. But we're still in the middle of the phase that is designed to let parties reach agreement. And so we can't predict exactly whether that will happen or when it will happen, but there is a time limit. And sometime toward the middle of this year we will have reached or passed that time limit and have had to enter into the next phase.

Thank you. And then that would just then be a fully litigated case.

That's right.

Okay. And then in terms of just sort of the process going out and acquiring other assets and appreciate it, you've had a number of runs. I mean, can you just talk about the competition you're seeing out there and in particular I guess I'm thinking of private equity, is that making things I guess just so you're not getting to the goal line is that the main issue or is it just other issues out there?

There was actually a private equity presentation at the last MLP conference that we attended and we do have a chance to visit with investors at those -- and generally infrastructure assets that are being offered and auctions have been acquired by private equity funds over the last 12 to 24 months. And the presentation discussed the reasons for that. Number one is that MLPs generally are less acquisitive, as you're aware Selman they're focused more on growth projects and have become potentially net sellers of assets rather than buyers. So we're not seeing MLP competition per se. Where the, where the competition is coming from is private funds that have more flexibility in the total amount of leverage that they can apply, flexibility in not needing a current dividend. So unlike our structure, but we do have an expectation of an equity dividend, as well as leverage. But we're more modest with leverage and do require equity. So there have been occasions we've observed in processes we've been in where unlike past periods of time that the best fit or best bid has come from private investment source, whether it's private equity per se, or a fund that is privately managed. They have more flexibility in terms of how they structure their financing and have largely been winning in most processes.

Thank you. This concludes our question-and-answer session. I'd like to turn our floor back over to management for closing comments.

Well, I want to thank everybody for their continued interest and as you can tell from the efforts we put forward both throughout last year and at the very end of the year we're very focused on sustaining our $3 dividend. We believe that is within our control and we will endeavor, not only to preserve the dividend, but to grow it through additional acquisitions of assets in 2019. And again, thank you for your continued support.

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