Here's A Closer Look At How This REIT & Natural Gas Pipeline Came Together
It isn't very often that a company announces a secondary offer that amounts to a 41 percent increase in shares outstanding. The first thing that comes to mind is that this huge equity raise must be dilutive to earnings per share.
Perhaps that is why CorEnergy Infrastructure Trust Inc (NYSE: CORR) also announced a 3.8 percent annual dividend increase from $0.52 per share to $0.54 per share on November 17, concurrently with its announced MoGas Pipeline System acquisition.
Based upon mid-day trading on November 18, the forward dividend yield (based upon the pipeline acquisition anticipated to close by November 26, 2014) would be around 7.5 percent.
CorEnergy management has guided that it intends to manage the company with an eye toward steady annual dividend increases.
The MoGas Deal
CorEnergy announced it is purchasing this 263-mile intrastate gas pipeline for $125 million. In an energy universe dominated by oil and gas majors a deal of this scale would only be a rounding error. It would only become a headline if there were something to go terribly wrong like a gas leak.
However, for a relatively new REIT with a market cap of only $229 million and total assets in the range of $324 million, this is a huge deal.
Source: CorEnergy SEC filing 424B5 11/17/14
"We are pleased to add an interstate pipeline to our diversified portfolio of infrastructure assets used by utilities, storage terminal operators, and natural gas producers," said David Schulte, chief executive officer of CorEnergy.
"Our Board of Directors has confirmed its intent to increase the dividend from $0.130 to $0.135 for the quarter ended March 31, 2015 (or $0.54 cents per share annualized) based upon management's expectation that the increase is sustainable."
While this is a large asset for CorEnergy to acquire, it is consistent with how the company has grown its portfolio. The company already had around a $212 million interest in Pinedale LGS.
The proposed MoGas Pipeline assets would actually result in reducing overall CorEnergy portfolio concentration due to the large Pinedale component. It is notable that a subsidiary of Prudential Financial owns an 18.95 percent economic interest in Pinedale LP.
REIT Asset Classes Have Been Expanding
Most investors associate office, industrial, retail and apartments with REITs. Historically, this has been the case. However, based upon recent IRS private letter rulings (PLRs), assets as diverse as wireless towers, datacenters and outdoor advertising billboards have been added to the mix.
CorEnergy has received positive PLRs regarding a variety of energy infrastructure categories being considered acceptable REIT asset classes.
An additional 1,950,000 CORR shares could be sold at the option of underwriters Bank of America Merrill Lynch and Wells Fargo.
A Green Player In This Sector
While energy infrastructure assets are a relatively new REIT sub-sector investors interested in this space can also evaluate $380 million cap Hannon Armstrong Sustnbl Infrstr Cap Inc (NYSE: HASI).
Hannon Armstrong funds projects which increase energy efficiency, provide cleaner energy, positively impact the environment or make more efficient use of natural resources. Hannon Armstrong targets projects that have high credit quality obligors, contracted revenue streams and inherent economic value.
The company defines sustainability as "positively impacting the environment while being neutral or reducing greenhouse gas (GHG) emissions.
"In addition to GHG emissions, projects are screened for other environmental benefits, such as water use reduction. The quantification of environmental benefits is part of our investment screening process."
Investors interested in supporting sustainable energy initiatives while earning dividend income should have HASI on the radar screen.
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