Best Performing REIT: 90% of Revenues Depend on Chapter 11

chart01The best performing equity REIT stock of 2016 is a company whose major tenants are somehow under Chapter 11. In spite of this, the stock returns have exceeded those of data center and net lease retail. While the stock has been under immense pressure, tenants have, so far, remained current on lease payments. Consequently, the company is still paying regular dividends. That company is CorEnergy Infrastructure Trust, a small cap energy REIT where high risks have yielded high returns.

Since 90% of rental revenues depend on the outcome of the Chapter 11 proceedings, CorEnergy has been submerged in a sea of uncertainty. Falling gas and oil prices threw the tenants’ parent companies, Ultra Petroleum and Energy XXL, in disarray. In April, both companies had no choice but to file for bankruptcy. There’s only one difference. In Energy XXL’s case, the tenant hasn’t filed for relief, while in Ultra Petroleum’s case, it has.

A potential rejection of Ultra Petroleum’s lease by its tenant could lead CorEnergy to cut its dividend. Ultra Petroleum’s lease accounted for 40% of the total lease revenues in Q1. Not even its dividend payout rate of 70% could absorb this revenue loss. However, management’s position is that the bankruptcy has been expected by the market and the leases will be preserved due to low lease expense and the importance of the assets to the tenants.

Meanwhile, investors seem to be confident that the company will be able to sail through the bankruptcy. Obviously, the share price is significantly down from its 52-week, but the interest in the stock has been high, given its performance this year. With a dividend yield of 14%, the 2016 total return has been north of 60%. Investors are, obviously, hoping that management is right and the bankruptcy proceedings will be nothing more than a bureaucratic milestone.

Source: CorEnergy Infrastructure Trust(NYSE:CORR), Fast Graphs

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s