Press Release: CorEnergy Announces Acquisition of Crimson's California Pipeline Assets
CorEnergy Announces Acquisition of Crimson's California Pipeline Assets
Consideration Includes Sale of Grand Isle Gathering System
CorEnergy Infrastructure Trust, Inc. ("CorEnergy" or the "Company") today announced the acquisition (the "Transaction") of Crimson Midstream Holdings, LLC ("Crimson"), a California Public Utilities Commission (CPUC) regulated crude oil pipeline owner and operator, for consideration valued at approximately $350 million. The acquired assets include four critical infrastructure pipeline systems spanning approximately 1,800 miles across northern, central and southern California, connecting desirable native California crude production to in-state refineries producing state-mandated specialized fuel blends, among other products.
The acquisition was funded with a combination of cash on hand, commitments to issue, as described below, approximately $119.4 million of new common and preferred equity, contribution of the Grand Isle Gathering System (GIGS) to the sellers, and $105.0 million in new term and revolver borrowings. The acquired assets qualify for REIT treatment under established IRS regulations and CorEnergy's Private Letter Ruling (PLR).
Crimson Transaction Highlights and Outlook
Following the transaction, Dave Schulte will remain Chairman, CEO and President of CorEnergy. John Grier, founder and Board Chairman of Crimson Midstream, LLC, will become Chief Operating Officer and join the Board of Directors of CorEnergy. Additional members of Crimson's executive and operating teams joining CorEnergy, include Robert Waldron, Chief Financial Officer at Crimson Midstream, who will become CFO of CorEnergy and Larry Alexander, President of Crimson California's operations.
Commented Dave Schulte, "The acquisition of Crimson diversifies CORR's critical infrastructure portfolio with four new pipeline networks and positions CorEnergy as an owner/operator of utility-like assets in line with expectations for our industry leading REIT qualifying platform. John and his team operate safely and reliably in a highly regulated market, and we plan to leverage their expertise to continue to grow our newly combined company. Additionally, we are exchanging CorEnergy's single-tenant GIGS asset for long-lived critical infrastructure pipeline systems used by a diverse group of investment-grade rated customers."
"Our combined ability to pursue additional opportunities leveraging Crimson's oil market relationships, together with CorEnergy's natural gas transmission assets, establishes a diversified foundation for future acquisition consideration," said John Grier. "The Crimson pipeline networks connect multi-billion dollar refining complexes to low declining fields, producing desirable native grades of California crude oil, which is required for blended energy products satisfying state environmental standards. We are confident that Crimson's total system volumes will increase from current levels as both consumers and producers return to pre-COVID-19 activity levels. In addition, we believe that there are commercial growth opportunities in California that could provide additional contributions to cash flow, including opportunities to leverage Crimson's leading position in the market and extensive real property ownership for renewable fuel storage and distribution, carbon capture potential, and the shift to lower carbon power sourcing."
Internalization of Manager
CorEnergy has also agreed to internalize (the "Internalization") its REIT manager, Corridor InfraTrust Management, LLC (the "Manager"), for consideration of $16.9 million. As a result of the Internalization, CorEnergy anticipates that the pro forma management fees of approximately $5.5 million will be replaced with an estimated $3.4 million annualized SG&A expenses in 2021.
The Internalization was negotiated and approved by a special committee of CorEnergy's Board of Directors comprised entirely of independent directors (the "Special Committee"). The Internalization will result in the direct employment of the Manager's existing management team and certain other employees. The Internalization is subject to stockholder approval in compliance with NYSE rules and other customary closing conditions, and is expected to close in the second quarter of 2021. Evercore Inc. acted as financial advisor to the independent Special Committee and issued a fairness opinion in connection with the Internalization.
"With the expansion of our assets and increased scale of our operating businesses, we believe it is appropriate to change the external manager structure, which enabled us to launch CORR in 2012," said Dave Schulte. "The combined management team's equity ownership enhances our alignment with our stockholders' interest in the success of CorEnergy delivering dividend stability and long-term growth prospects."
Crimson Transaction and Internalization Details
The Transaction is valued at $350.0 million, with CorEnergy's consideration comprised of $75.6 million of cash on hand, $105.0 million in new term loan and revolver borrowings, contribution of the Grand Isle Gathering System (GIGS) to the sellers, $119.4 million of commitments to issue common and preferred equity.
Grier will initially receive new equity units in Crimson in connection with the Transaction, and those units will become convertible into CorEnergy common and preferred stock as described below. The conversion of the Crimson units to CorEnergy securities is contingent on obtaining CPUC approval, which is expected to occur in the third quarter of 2021. At that time, certain Crimson units held by Grier are expected to be transferred to other individuals currently managing Crimson. Additionally, Crimson units exchangeable for CorEnergy preferred stock only become convertible into CorEnergy common stock if existing CorEnergy stockholders approve such conversion into common stock in accordance with NYSE rules.
Assuming conversion of all Crimson units to CorEnergy securities and approval of CORR stockholders, Grier, other Crimson managers, and owners of the Manager will own approximately 49% of CorEnergy's common stock and Class B common stock. The Class B common stock dividend will be subordinated to CorEnergy's currently outstanding common stock, until pre-determined performance milestones for dividend stability and growth are achieved.
The Company will host a conference call to discuss the Transaction on Friday, February 5, 2021 at 10:00 a.m. Eastern Time. To join the call, please dial +1-201-689-8035 at least five minutes prior to the scheduled start time. The call will also be webcast in a listen-only format. A link to the webcast will be accessible at corenergy.reit. Additionally, the Company has filed a Form 8-K and provided an investor deck for the conference call, both available online at corenergy.reit.
A replay of the call will be available until 1:00 p.m. Central Time on March 7, by dialing +1-919-882-2331. The Conference ID is 39878. A webcast replay of the conference call will also be available on the Company's website, corenergy.reit.
About CorEnergy Infrastructure Trust, Inc.
CorEnergy Infrastructure Trust, Inc. (NYSE: CORR, CORRPrA) is a real estate investment trust that owns and operates or leases regulated natural gas transmission and distribution and crude oil gathering, storage and transmission pipelines and associated rights-of-way. For more information, please visit corenergy.reit.
This press release contains certain statements that may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, included herein are "forward-looking statements." Although CorEnergy believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including, among others, failure to realize the anticipated benefits of the Transaction or Internalization; the risk that CPUC approval is not obtained, is delayed or is subject to unanticipated conditions that could adversely affect CorEnergy or the expected benefits of the Transaction, risks related to the uncertainty of the projected financial information with respect to Crimson, the failure to receive the required
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