CorEnergy Infrastructure Trust (CORR) offers a compelling value proposition driven by stable, high-cash-generating business models in the midstream that provide very desirable investment characteristics, asserts Brad Thomas, real estate investment trust expert and editor of The Intelligent REIT Investor.
Given the strong growth potential for “dedicated infrastructure” assets — mostly pipelines and storage assets — CORR offers a compelling value proposition driven by stable, high-cash-generating business models in the midstream that provide very desirable investment characteristics.
CORR owns assets that are critical to upstream counterparties, that are located in desirable fields that are integral to their overall operations. CORR has proven that the revenue stream is reliable, even in periods of distress, as long as the assets are critical to the upstream operators.
Having come out of the energy crisis with its strategy validated, CORR has become a battle-tested REIT that is now better prepared to scale into a safer investment platform.
CORR is the first Infrastructure REIT so there is somewhat of an acceptance risk. However, there's also an opportunity: CORR can build a foothold—as the premier partner of choice in energy infrastructure sale/leaseback transactions. Instead of competing for deals in the open market, CORR can source off-market deals and essentially be the "go to" landlord of choice.
Because the leases are net lease structured (tenants pay for taxes, insurance, and maintenance), the only way the company would lose revenue is if the tenant defaulted under its lease contract. However, if one of its properties fails for whatever reason, it would have an enormous impact on earnings and dividends. As a measure to combat these risks, CORR is continuing to grow in size such that it can mitigate tenant concentration.
CORR’s capital structure remains conservative and flexible with the total debt to total capitalization ratio at the low end of the target range and the preferred to total equity ratio at 29%, below the 33% target range.
The REITcontinues to prudently manage its utilization, considering the status of the borrowing base assets and potential uses for growth. The company has access to diversified pools of capital, using its existing financial tools as well as potential for co-investors and project level debt.
CORR continues paying a stable dividend of $0.75 a quarter and maintains a “comfortable” level of coverage level. The current yield is 8.5% (common shares).