Yesterday, CorEnergy Trust (NYSE:CORR) announced that it was acquiring 100 percent of the Grand Isle Gathering System from Energy XXI USA Inc. (NASDAQ:EXXI) for $245 million. CORR also said it intends to offer 11,250,000 shares of common stock to generate new proceeds of around $86.4 million (estimated at $6.68 per share).
You may recall that in a previous article, I explained that CORR is my “underdog REIT in 2015,” and my recommendation in the more speculative REIT was based on the company’s “premier partnerships” with energy infrastructure businesses. I wrote:
Instead of competing for deals in the open market, CorEnergy can source off-market deals and essentially be the “go to” landlord of choice.
I view CORR as more of a bank (or BDC) than a REIT, since the company provides sale/leaseback-funding utilizing net leases, and the only way it would lose revenue is if the tenant defaulted under its lease contract.
Although CORR is new as a REIT ($462 million in assets), the business was formed over 10 years ago, and many of the original investors remain equityholders in the company. The chart below illustrates the securities portfolio in 2010, when CORR was named Tortoise Capital Resources, and which was the company’s last year structured as a BDC. The company was taxable so that it could hold pass-through entities (it had total assets of $95 million, no line of credit at the time and a $0.44 dividend).
Today, CORR is completely repositioned with $462 million in assets – and capabilities to fund projects for public and private companies in transaction sizes typically from $15 million to $250 million.
CORR’s portfolio of energy infrastructure assets includes utilities, storage terminal operators, and oil & gas producers. One of the bigger risks for CORR is its size and reliance on larger customers. For example, its largest asset isPinedale Liquids Gathering System, which represents around 48 percent of revenue.
