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Ron Hiram  

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  • A Closer Look At Energy Transfer Partners' Distributable Cash Flow As Of 4Q 2014
    Wed, Mar. 18 ETP 9 Comments

    Summary

    • Coverage ratio, as reported by ETP, increased from1.03x in 2013 to 1.27x in 2014.
    • Through IDR relinquishment, ETE provides considerable help in achieving ETP’s coverage ratios.
    • Frequent occurrences of “one-time” items mar the quality of the reported coverage numbers.
    • Sustainable DCF coverage in 2014 was below the 1x threshold; ETP funded part of its 2014 distributions by issuing partnership units and debt.
  • A Closer Look At Enterprise Products Partners' Distributable Cash Flow As Of 4Q 2014
    Wed, Mar. 11 EPD 17 Comments

    Summary

    • On a per unit basis, sustainable DCF decreased in 2014 and in 4Q14 vs. the corresponding prior year periods; however, coverage ratios still appear to be very strong.
    • Sustainable DCF substantially exceeded distributions, but grew more slowly in 2014.
    • Excess cash generated (~$6.7 billion over the past 5 years) enables EPD to reduce reliance on the issuance of additional partnership units or debt to fund expansion projects.
    • The dramatic declines in energy prices are likely to present significant challenges, but at least for the next two years, EPD is well positioned and remains a core MLP holding.
  • A Closer Look At Plains All American Pipeline's Distributable Cash Flow As Of 4Q 2014
    Tue, Mar. 3 PAA 5 Comments

    Summary

    • PAA’s sustainable cash flow in 2014 did not materially differ from reported DCF due to a number of offsetting items.
    • PAA is not financing its distributions via issuance of new units or debt.
    • The drop in the 2014 coverage ratio from the prior-year level was expected.
    • Revised guidance lowers not only the rate of distribution growth but also implies no excess coverage in 2015; this could significantly increase in PAA’s risk profile.
    • Recent unit issuance was done at significant cost to LPs; seems to mostly benefit PAGP; I will look for opportunities to reduce my position or switch to PAGP.
  • A Closer Look At Suburban Propane Partners' Results And Cash Flows As Of Dec. 31, 2014
    Thu, Feb. 26 SPH 2 Comments

    Summary

    • 1QFY15 volumes and earnings were adversely by warmer than usual weather. But, together with sharply lower propane prices, there was a positive effect on working capital needs.
    • Adjusted EBITDA of ~$320 million can be expected for fiscal 2015; should be more than sufficient to cover distributions and other cash needs without issuing new debt or equity.
    • For the past 12 months SPH’s current yield has been higher, its unit price volatility lower, and its price performance better compared to the Alerian MLP Index.
    • Susceptibility to weather conditions, volatile commodity costs and difficulties encountered in passing on higher propane costs to customers remain a concern; on balance, I remain on the sidelines.
  • Preliminary Review Of Energy Transfer Partners' Q4 2014 Results
    Tue, Feb. 24 ETP 12 Comments

    Summary

    • Segment Adjusted EBITDA has grown substantially over the past 4 quarters; but frequent occurrences of items characterized as “one-time” and “non-cash” mars the quality of the numbers.
    • With the portfolio of new and expansion projects at hand, the current growth levels at ETP and ETE can be sustained even in the current weak energy price environment.
    • Certain portions of the business could face challenges in terms of achieving project return targets at current energy price levels in some of the shale formations where ETP operates.
    • Concerns also include the economics of the RGP acquisition for ETP and the related-party transactions that split these projects among the various Energy Transfer entities.
    • I remain overweight on ETE vs. ETP.
  • A Closer Look At Targa Resources Partners' Distributable Cash Flow As Of Q4 2014
    Wed, Feb. 18 NGLS 6 Comments

    Summary

    • Operating margins and Adjusted EBITDA increased in 4Q14, but at a far slower rate compared to the prior 4 consecutive quarters.
    • Coverage of reported and sustainable DCF in 4Q14 and 2014 was excellent, but is likely to fall from 1.5x in 2014 to 1.0x or even below that in 2015.
    • Multiple of enterprise value to TTM EBITDA appears very reasonable following significant pullbacks in NGLS and TRGP unit prices.
  • Preliminary Review Of Buckeye Partners' Q4 2014 Results
    Fri, Feb. 13 BPL 3 Comments

    Summary

    • Overall, BPL’s business plans for 2015 are unchanged by the drop in oil prices; businesses adversely affected account for less than 5% of EBITDA.
    • Strong demand for storage of crude and refined products in 4Q14 driving increased utilization levels and expectation of increased rates, as capacity is re-contracted.
    • Coverage ratio was below 1x in 2014 and is expected to be below 1x in the first half of 2015.
    • BPL remains totally reliant on the capital markets to fund its growth projects.
    • BPL trades at a higher multiple of enterprise value to TTM EBITDA relative to better performing MLPs.
  • Preliminary Review Of Magellan Midstream Partners' 4Q 2104 Results
    Wed, Feb. 11 MMP 5 Comments

    Summary

    • In 4Q14, each business segment exhibited higher operating margins vs. 4Q13; total operating margin increased both in terms of absolute numbers and on a per unit basis.
    • Aggregating the four recent quarters indicates that, on a per unit basis, DCF increased by 31% and distributions by 20% in 2014; coverage ratio was ~1.5x.
    • Favorable structure: no IDRs, low leverage, and no additional public issuances of partnership units issued in over 3 years.
    • Projections of 15% increase in distributions in 2015 and 10% in 2016 are underpinned by solid coverage ratios and conservative assumptions leaving room for some upside.
    • Premium price vs. other MLPs justified; accumulate on weakness.
  • Preliminary Review Of Plains All American Pipeline's Q4 2014 Results
    Tue, Feb. 10 PAA 12 Comments

    Summary

    • Significant decrease in revenues and associated cost of sales in 4Q14 compared to the fourth quarter of 2013.
    • Significant increase in 4Q14 segment profit compared to 4Q13, both in absolute terms and on a per unit basis.
    • Adjusted EBITDA declined in 4Q14 compared to 4Q13 due to gains and losses on derivative instruments.
    • Revised guidance lowers not only the rate of distribution growth but also implies there will no excess coverage in 2015; this could significantly increase in PAA’s risk profile.
  • Preliminary Review Of Enterprise Products Partners' Results For Q4 2014
    Wed, Feb. 4 EPD 11 Comments

    Summary

    • Sharp declines in NGL and crude prices adversely affected EPD's largest segment via lower natural gas processing margins and lower equity NGL production.
    • 4Q14 performance was nevertheless impressive; gross operating margin and DCF per unit increased.
    • Over $6 billion of projects will begin operations over the next two years.
    • EPD is currently not seeing significant reductions in projected spending on growth projects or in rates of returns on its projects.
    • The dramatic declines in energy prices are likely to present significant challenges, but at least for the next two years, EPD is well positioned and remains a core MLP holding.
  • Methodology For Assessing Sustainability Of Annaly's 11.3% Dividend Yield
    Wed, Jan. 28 NLY 15 Comments

    Summary

    • In 3 of the last 4 quarters, sustainable coverage of dividends was positive.
    • Return to positive coverage in 2Q14 and 3Q14 was achieved without increasing leverage and was almost entirely driven by the better net interest spreads.
    • The current dividend again seems to be aligned with what NLY’s basic business model can produce.
    • Recent declines in long-term interest rates could exert a downward pressure on the spread and endanger dividend sustainability.
  • Preliminary Review Of Kinder Morgan's Results For Q4 2014
    Tue, Jan. 27 KMI 12 Comments

    Summary

    • KMI’s first quarterly report after the merger transactions showed solid results.
    • The 41% increase in the number of shares resulting from the merger transactions is the reason for the 25% decline in Adjusted EBDA per share in 4Q14 vs. 4Q13.
    • DCF in 4Q14 is much higher than in prior quarters due to the manner of its derivation post the merger transactions, not due to operational results.
    • KMI appears reasonably priced vs. its large cap peers on an EV/EBITDA basis.
    • Recent market turmoil and sharp declines in oil and gas prices are not expected to have a material adverse effect in 2015.
  • A Closer Look At Targa Resources Partners' 3Q'14 Distributable Cash Flow
    Nov. 26, 2014 NGLS 15 Comments

    Summary

    • Impressive increases in operating margins and Adjusted EBITDA in the last 4 consecutive quarters.
    • Very solid coverage of sustainable DCF in the TTM ended 9/30/14.
    • Multiple of enterprise value to TTM EBITDA appears very reasonable relative to other MLPs with lower distribution growth prospects.
    • APL acquisition should be immediately accretive to DCF. Combined partnership will be one of the largest diversified MLPs with pro forma enterprise value of $23 billion.
  • A Closer Look At Buckeye Partners' 3Q'14 Distributable Cash Flow
    Nov. 21, 2014 BPL 7 Comments

    Summary

    • BPL has been funding distributions by issuing debt and equity.
    • Stark differences between reported and sustainable DCF due to cash consumed by working capital and by payments to terminate interest rate swaps.
    • DCF coverage is likely to be below 1x in 2014. Improvement expected in 4Q14.
    • Distribution growth rate is slow; increased by 1.25 cents per unit each quarter in 2013 and in each of the first 3 quarters of 2014.
    • High multiple of enterprise value to TTM EBITDA relative to better performing MLPs.
  • A Closer Look At Energy Transfer Partners' 3Q'14 Distributable Cash Flow
    Nov. 19, 2014 ETP, ETE 23 Comments

    Summary

    • All segments exhibited notable Adjusted EBITDA improvements on a TTM basis except Interstate Transportation & Storage.
    • Substantial differences between reported DCF and what I consider sustainable DCF.
    • Sustainable DCF coverage in the latest TTM periods improved considerably compared to the prior year period, but is still below 1x in the TTM ended 9/30/14.
    • ETE’s relinquishment of some IDR distributions provided considerable help in achieving the improvement.
    • Growth underpinned by substantial list of large projects underway; concerns regarding related-party transactions remain regarding how these projects will be split among the various Energy Transfer entities.
  • A Closer Look At Plains All American Pipeline's Q3'14 Distributable Cash Flow
    Nov. 18, 2014 PAA 13 Comments

    Summary

    • Q3'14 results bolstered by Supply & Logistics segment profits; up 138% over Q3'13.
    • Unusually strong Q1'14 results may cause adjusted EBITDA unfavorable comparison with Q1'15; could create a buying opportunity if unit price drops in response.
    • DCF coverage of distributions remains strong and sustainable.
    • Unit price has underperformed peers and MLP index in last 12 months.
    • Disciplined, cohesive, management team; well positioned in major crude oil basins and market hubs; not highly leveraged; consistently meet or exceed guidance.
  • A Closer Look At Enterprise Products Partners' Q3 2014 Distributable Cash Flow
    Nov. 14, 2014 EPD 6 Comments

    Summary

    • Consistently strong DCF coverage ratios; growth in DCF per unit exceeding growth in distributions.
    • Substantial excess cash reduces reliance on capital markets and minimizes dilution.
    • Favorable structure: no IDRs, low leverage, breadth and diversification.
    • Growth underpinned by projects beginning commercial operations: $4.9 billion in latest 12 months and a further $6.3 billion in 2015-2016.
    • Core MLP holding; premium price vs. other MLPs justified.
  • A Closer Look At Magellan Midstream Partners' 3Q'14 Distributable Cash Flow
    Nov. 12, 2014 MMP 3 Comments

    Summary

    • Strong DCF coverage ratios; no material differences between reported and sustainable DCF.
    • Growth in DCF per unit far exceeding growth in distributions.
    • Favorable structure: no IDRs, low leverage, and no additional public issuances of partnership units issued in over 3 years.
    • Impressive array of high-return projects, some recently completed and others added to backlog.
    • Projections of 20% increase in distributions in 2014 and 15% in 2015 may be conservative; premium price vs. other MLPs justified.
  • A Closer Look At Williams Partners' Q3 '14 Distributable Cash Flow
    Editors' Pick • Nov. 7, 2014 WPZ 5 Comments

    Summary

    • Key business parameters, when measured on a per unit basis and compared to the prior-year period, have deteriorated for 10 consecutive quarters.
    • Increasing distributions in face of adverse business environment was enabled by issuance of equity and debt.
    • Management’s 2014 DCF target set in January 2014 was not met; nor was the downwardly revised target set in May.
    • Improvements in fee based business and major capital projects soon to be placed in service drive sizable increases in per unit DCF forecasted for 2014-2016.
    • ACMP transaction appears more favorable to WMB than to WPZ.
  • A Closer Look At Kinder Morgan Energy Partners' 3Q14 Distributable Cash Flow
    Nov. 3, 2014 KMP 13 Comments

    Summary

    • Notwithstanding the pending consolidation of Kinder Morgan entities, an evaluation of KMP’s recent results and DCF is still highly relevant.
    • DCF coverage based on sustainable DCF has improved and exceeds reported coverage;the improvement was both quantitative and qualitative.
    • Recent market turmoil and sharp decline in commodity prices, particularly oil, is not expected to adversely affect KMP/KMI.
    • Project backlog is growing and could further accelerate if the anticipated increase in demand from conversion to gas by utilities and petrochemical companies materializes.
  • Preliminary Review Of El Paso Pipeline Partners' Results For 3Q 2014
    Oct. 21, 2014 EPB 2 Comments

    Summary

    • Operating income and EBITDA per unit have declined in each of the last 5 quarters compared to the corresponding prior year periods.
    • Adjusted EBDA decreased in 5 of the last 6 quarters when measured on a per-unit basis.
    • DCF per unit increased by 12% in 3Q14 vs. the corresponding prior year period, achieving 1x coverage.
    • Main concern: how the market will value KMI on a post-transaction basis.
  • Preliminary Review Of Kinder Morgan Energy Partners' 3Q'14 Results
    Oct. 20, 2014 KMP 6 Comments

    Summary

    • Adjusted EBDA per unit and segment earnings per unit exhibit slow growth year-to-year for the past 5 calendar quarters.
    • Distributions per unit are growing somewhat faster than DCF per unit.
    • Recent market turmoil and sharp decline in commodity prices, particularly oil, is not expected to have an adverse effect.
    • Project backlog is growing and could further accelerate if the anticipated increase in demand from conversion to gas by utilities and petrochemical companies materializes.
  • Does American Capital Agency's Business Model Support A Dividend Increase?
    Aug. 29, 2014 AGNC 15 Comments

    Summary

    • AGNC’s sustainable coverage of dividends turned positive in 4Q13 and has remained so for the last 3 consecutive quarters.
    • The improved performance was primarily driven by dividend reductions and was achieved while decreasing leverage.
    • The 5-year trend of declining or flat dividends may finally break if net interest rate spreads hold.
  • Does Annaly's Business Model Support A Dividend Increase?
    Aug. 28, 2014 NLY 20 Comments

    Summary

    • The current dividend again seems to be aligned with what NLY’s basic business model can produce.
    • Return to positive coverage in 2Q14 was achieved without increasing leverage.
    • The 3-year trend of declining or flat dividends may finally break if net interest rate spreads hold.
  • A Closer Look At Boardwalk Pipeline Partners' Q2'14 Distributable Cash Flow
    Aug. 26, 2014 BWP 8 Comments

    Summary

    • The 2014 DCF forecast is likely to be met or exceeded.
    • The leverage target (4x Debt-to-EBITDA) is unlikely to be reached by year-end.
    • Operating income and EBITDA trends in recent quarters and the TTM period are not encouraging.
    • Valuation multiple lower than peers, but so is current yield. The likelihood of significant distribution growth in the next 2-3 years is low.
    • BWP is well-positioned to benefit from increased demand to transport gas and NGLs from north to south. But this will require significant capital investments and time.
  • A Closer Look At Suburban Propane Partners' Q3 FY14 Distributable Cash Flow
    Aug. 25, 2014 SPH 5 Comments

    Summary

    • Gross margins as a percent of revenues declined for the 3 recent consecutive quarters and latest 12 months.
    • Adjusted EBITDA per unit, net cash from operations and DCF also declined in the latest 12-month period.
    • Cash reserves have been used to fund distributions.
    • Despite its lower valuation multiple and significantly higher current distribution yield, SPH has underperformed its peers.
  • A Closer Look At Regency Energy Partners' Q2'14 Distributable Cash Flow
    Aug. 22, 2014 RGP 1 Comment

    Summary

    • There are significant differences between EBITDA and Adjusted EBITDA because investments in unconsolidated affiliates are treated as if they were fully consolidated.
    • Even on an adjusted basis, EV/EBITDA multiple is high vs. other MLPs.
    • RGP has not been generating excess cash that could help fund its capital expenditures and reduce reliance on raising debt and equity.
    • Transformative acquisitions plus large backlog of approved organic growth projects underpin expected volume growth, earnings growth, and distribution growth.
  • A Closer Look At Buckeye Partners' 2Q'14 Distributable Cash Flow
    Aug. 19, 2014 BPL 3 Comments

    Summary

    • Lots of “noise” in the numbers; performance problems, further asset writedowns, exclusion of acquisition and transition expenses.
    • BPL has been funding distributions by issuing debt and equity.
    • Stark differences between reported and sustainable DCF due, in part, to cash consumed by higher inventories and trade receivables.
    • DCF coverage is likely to be below 1x in 2014. Expected uplift in this year’s cash flows will only occur in the second half of 2014.
    • High multiple of enterprise value to TTM EBITDA relative to better performing MLPs.
  • A Closer Look At Enterprise Products Partners' Q2'14 Distributable Cash Flow
    Aug. 18, 2014 EPD 13 Comments

    Summary

    • Consistently strong DCF coverage ratios.
    • Substantial excess cash reduces reliance on capital markets and minimizes dilution.
    • Growth in DCF per unit exceeding growth in distributions.
    • Favorable structure: no IDRs, low leverage, breadth and diversification.
    • Core MLP holding; premium price vs. other MLPs justified.
  • A Closer Look At Plains All American Pipeline's Q2'14 Distributable Cash Flow
    Aug. 15, 2014 PAA 8 Comments

    Summary

    • Supply & Logistics segment profits and adjusted EBITDA may continue to compare unfavorably with prior year results for balance of 2014.
    • DCF coverage of distributions remains strong and sustainable.
    • Unit price has underperformed peers and MLP index in last 12 months.
    • Disciplined, cohesive, management team; consistently meet or exceed guidance.
  • A Closer Look At Magellan Midstream Partners' Q2'14 Distributable Cash Flow
    Aug. 12, 2014 MMP 7 Comments

    Summary

    • Strong DCF coverage ratios; no material differences between reported and sustainable DCF.
    • Growth in DCF per unit far exceeding growth in distributions.
    • MMP has not issued additional partnership units in over 3 years.
    • Favorable structure: no IDRs, low leverage.
    • Ability to increase distributions beyond the 20% and 15% projected for 2014 and 2015; premium price vs. other MLPs justified.
  • A Closer Look At Energy Transfer Partners' Q2'14 Distributable Cash Flow
    Aug. 11, 2014 ETP 9 Comments

    Summary

    • Concerns regarding related-party transactions remain.
    • Adjusted EBITDA increasing for all segments except Interstate.
    • DCF and coverage ratios are improving, although partly due to exclusion of "one-time" items and ETE's relinquishment of some IDR distributions.
    • Significant new projects announced.