In January I wrote an article on CorEnergy (NYSE:CORR) and I described the company as my “2015 REIT Underdog”. Earlier this week the company announced its first-quarter results, so I decided that I would provide an update on the Energy Infrastructure REIT.
Before beginning, I will remind you that CORR generates revenue by leasing infrastructure assets, or offering loans secured by infrastructure assets, to energy companies. The leases and loans are long-term and are structured to include a large fixed payment that is payable irrespective of the use of the asset and are not impacted by commodity price movements.
Although CORR looks like an MLP (Master Limited Partnership) or BDC (Business Development Company), the company opted to modify its capital structure to a REIT.
As a REIT, CORR is by nature a passive, long-term partner. By customizing long-term leases and structured financings (to meet the control and economic requirements of the lessees) CORR partners with certain exploration and production companies to monetize the assets and free up internal capital for higher return projects. As a result, the universe of assets that may be owned by a REIT has expanded significantly.
In CORR’s 2015 Annual Report the company explains:
The Internal Revenue Service has, through a series of private letter rulings, as well as proposed regulations, described new types of assets in the energy sector which are eligible to be owned by a REIT, including electric transmission and distribution systems, pipeline systems, and storage and terminaling systems.
Energy infrastructure provides essential services, and the demand for energy resources is expected to grow in the future. As CORR explains in the Annual Report:
We believe energy infrastructure is the backbone of the U.S. economy.
The energy infrastructure sector includes the pipes, wires and storage facilities that connect and deliver some of our most critical resources: oil, natural gas, and electricity.
CORR’s business objective is to invest principally in the energy infrastructure sector. The energy infrastructure sector broadly includes midstream, downstream and upstream assets. CORR focuses primarily on midstream and downstream assets as described below. Source: CORR Filing
• Midstream – the gathering, processing, storing, terminaling and transporting of energy resources and their byproducts in a form that is usable by wholesale power generation, utility, petrochemical, industrial and refined products customers, including pipelines, natural gas processing plants, liquefied natural gas facilities and other energy infrastructure companies.
