It's Not A Bird, It's Not A Plane, It's Hannon Armstrong

Hannon Armstrong (NYSE:HASI) listed shares over three years ago (April 2013), just in time for the IRS to issue a notice of proposed rule-making (May 2013) clarifying the definition of real property for REITs (REG - 150760 -13), in which it provided clarity as to what constitutes real REIT property.

Summary

  • The infrastructure universe spans a broad range of subsectors.
  • I’m focusing on another infrastructure play that is substantially safer than Uniti Group.
  • I consider Hannon Armstrong to be one of the most predictable REITs, especially when considering its dividend growth potential.

You may recall reading an article I wrote a few weeks back, titled “Why Not An Airport REIT?”

In that article, I was referring to the crumbling infrastructure in America and the potential for REITs to capture a slice of that pie by investing in transportation real estate.

When you really boil it down, investing in infrastructure can be a rewarding part of the growing REIT sector, and that’s one of the reasons that I decided to include transportation, energy, utilities and communications in my research.

In a research paper, Cohen & Steers writes:

“Allocations to listed infrastructure have been on the rise in recent years amid growing demand for real assets offering relatively predictable cash flows and the potential for attractive real returns.
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As cash-strapped governments increasingly turn to private markets to fill a capital void, new security structures have been introduced globally, including those focused on income delivery.”

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This trend will be supported by increasing awareness of service and reliability issues - reinforced by headline events ranging from Flint, Michigan-type water crises to the latest freight or passenger train derailment.”

The infrastructure universe spans a broad range of subsectors, which C&S groups into four main categories:

Although rarely applied until recently, a REIT is a vehicle that can be used to raise capital for infrastructure investments in “public-private partnership” transactions. In the abstract, REITs have certain advantages over the fund model.

Recently, several favorable IRS private letter rulings sanctioning the use of REITs to own electric and gas distribution systems have increased interest in their role in infrastructure investments.

You may read my article yesterday on Uniti Group (NASDAQ:UNIT), a REIT that has been benefiting from an increase in wireless data usage as all four national carriers are now offering an unlimited data plan. Uniti’s Tower strategy is to bundle tower and tower real estate infrastructure with other mission-critical communication infrastructure.

UNIT has struggled lately due to its outsized exposure to Windstream (NASDAQ:WIN), the company's largest tenant that cut its dividend recently. UNIT now has a whopping 12.5% dividend yield, and Mr. Market is telegraphing, “Could this be a sucker yield?”

I don’t think so, but I’ll save that argument for another day.

Today, I’m focusing on another infrastructure play that is substantially safer than UNIT. In fact, when you consider the over-creditworthiness of the income being generated by UNIT, it’s easy to understand why I selected the title for the article today:

It’s Not A Bird, It’s Not A Plane, It’s Hannon Armstrong

HASI Enters REIT-dom

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