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Ron Hiram

 
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  • Preliminary Review Of El Paso Pipeline Partners' Results For 3Q 2014
    Tue, Oct. 21 EPB Comment!

    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
    Mon, Oct. 20 KMP 5 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?
    Fri, Aug. 29 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?
    Thu, Aug. 28 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
    Tue, Aug. 26 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
    Mon, Aug. 25 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
    Fri, Aug. 22 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
    Tue, Aug. 19 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
    Mon, Aug. 18 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
    Fri, Aug. 15 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
    Tue, Aug. 12 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
    Mon, Aug. 11 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.
  • A Closer Look At Targa Resources Partners' 2Q14 Distributable Cash Flow
    Thu, Aug. 7 NGLS, TRGP 11 Comments

    Summary

    • Impressive increases in operating margins and Adjusted EBITDA in the last 3 consecutive quarters.
    • Midpoint Adjusted EBITDA guidance for 2014 raised; $950 million, up from $860 million.
    • Actual distribution increase in 2014 likely to exceed the 9% forecast.
  • A Closer Look At Williams Partners' Q2 '14 Distributable Cash Flow
    Tue, Aug. 5 WPZ 5 Comments

    Summary

    • Key business parameters, when measured on a per unit basis and compared to the prior year period, have deteriorated for 9 consecutive quarters.
    • Increasing distributions in the face of adverse business environment was enabled by issuance of equity and debt.
    • Favorable impact of assumed business interruption insurance proceeds is included in reported DCF.
    • 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' Q2 Distributable Cash Flow
    Editors' Pick • Fri, Aug. 1 KMP 18 Comments

    Summary

    • Reported distribution coverage includes items I do not consider sustainable and exclude outflows that would have been required but for KMR holders receiving in-kind distributions.
    • Were i-units to receive cash in lieu of KMP units, coverage ratios based on sustainable DCF would be lower than reported ratios.
    • Good news regarding natural gas pipeline expansion opportunities and CO2 business; but delays on Trans Mountain mega project.
    • IDR payments remain a drag on cost of capital and ability to raise distributions. KMP will require KMI waivers of IDR payments to meet its 2014 distribution target.
  • A Closer Look At El Paso Pipeline Partners' 2Q Distributable Cash Flow
    Thu, Jul. 31 EPB 5 Comments

    Summary

    • No material differences between reported and sustainable DCF.
    • EPB did not use cash raised from issuance of debt and equity to fund distributions in the latest TTM period.
    • But coverage of the current distribution level is very tight.
    • Amount remaining after cash generated by operations funds maintenance capital expenditures and distributions is sharply lower in latest TTM period.
    • Continue looking for opportunities to take profits and reduce positions.
  • Preliminary Review Of Kinder Morgan Energy Partners' Results For Q2 2014
    Tue, Jul. 29 KMP 4 Comments

    Summary

    • Sharp drop in 2Q14 net income is due to unusual items in 2Q13.
    • Slow growth in Adjusted EBDA per unit over the past 4 calendar quarters.
    • Growth in DCF per unit not quite keeping up with anticipated growth in 2014 distributions.
    • Good news are natural gas pipeline expansion opportunities and CO2 business; but delays on Trans Mountain mega project.
    • IDR payments remain a drag on cost of capital and ability to raise distributions.
  • Preliminary Review Of El Paso Pipeline Partners' Results For Q2
    Mon, Jul. 28 EPB 4 Comments

    Summary

    • Operating income and EBITDA per unit have declined in each of the last 4 quarters compared to the corresponding prior year periods.
    • Recent drop-downs expected to offset impact of lower rates on contract renewals.
    • Customers indicating interest in multi-year natural gas supply agreements for significant amounts of capacity.
    • Current growth projects will only be placed into production in 2016-2017.
    • Main concerns trumping attractive yield: zero growth in near term, GP conflict of interests.
  • A Closer Look At Buckeye Partners' Distributable Cash Flow As Of Q1 2014
    Tue, May. 27 BPL 2 Comments

    Summary

    • BPL funded distributions in the quarter and TTM ended 3/31/14 by issuing debt and equity.
    • Stark differences between reported and sustainable DCF due, in part, to cash consumed by higher inventories and accounts receivable.
    • Management’s expected uplift in this year’s cash flows will not occur before the second half of 2014.
    • High level of enterprise value to EBITDA relative to EPD and MMP.
    • I would not purchase BPL units at their current price level.
  • Model For Assessing Sustainability Of AGNC's 11% Dividend Yield - Q1 2014 Update
    Mon, May. 26 AGNC 10 Comments

    Summary

    • Unrealized gains and losses on the bulk of AGNC's assets do not appear on the income statement.
    • Net interest income does not include all the expenses of interest rate swaps.
    • A non-GAAP based model is therefore required to assess dividend sustainability.
    • The model presented indicates the current dividend rate is sustainable under Q114 levels of interest rate spreads and leverage.
  • A Closer Look At Williams Partners' Distributable Cash Flow As Of Q1 2014
    Wed, May. 21 WPZ 4 Comments

    Summary

    • Key business parameters, when measured on a per unit basis and compared to the prior-year period, have deteriorated for 8 consecutive quarters.
    • Increasing distributions in face of adverse business environment was enabled by issuance of equity and debt. But no significant need for additional equity projected in 2014-2015.
    • Cash flows in 2014 getting a boost from insurance recoveries.
    • 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.
  • Model For Assessing The Sustainability Of Annaly's Dividend - Q1 2014 Update
    Mon, May. 19 NLY 18 Comments

    Summary

    • Unrealized gains and losses on the bulk of NLY’s assets do not appear on the income statement.
    • Net interest income does not include all the expenses of interest rate swaps.
    • Non-GAAP based model is required to assess dividend sustainability.
    • Net interest income and leverage declined in 1Q14 vs. the prior quarter.
    • Model indicates current dividend rate is not sustainable unless these changes are reversed.
  • A Closer Look At Plains All American Pipeline's Distributable Cash Flow As Of Q1 2014
    Fri, May. 16 PAA 10 Comments

    Summary

    • As anticipated, 1Q14 total segment profits and adjusted EBITDA compare unfavorably with prior year results; same expected for 2Q14.
    • DCF coverage of distributions remains strong and sustainable.
    • Conservatively managed; 2014 performance may exceed guidelines.
    • Multiple upside scenarios appear discounted; unit price lower than it was 12 months ago.
  • A Closer Look At Magellan Midstream Partners' Distributable Cash Flow As Of Q1 2014
    Wed, May. 14 MMP 6 Comments

    Summary

    • Very strong 1Q14 results; high DCF coverage ratios; no material differences between reported and sustainable DCF.
    • Growth in DCF per unit far exceeding growth in distributions.
    • Flip side of extraordinary results - greater portion of EBITDA generated by activities with commodity price exposure.
    • Favorable structure: no IDRs, low leverage.
    • 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 Energy Transfer Partners' Distributable Cash Flow As Of Q1 2014
    Mon, May. 12 ETP 7 Comments

    Summary

    • Improvements in Adjusted EBITDA, DCF and sustainable DCF.
    • Constructive plans unveiled to exit retail marketing and to supply natural gas to Mexico.
    • No-core operations were largest contributors to the 1Q14 increase Adjusted EBITDA; core operations helped by cold weather.
    • Coverage based on sustainable lower DCF than on reported DCF; latter buoyed by large “one-time” items added back for 2nd consecutive quarter.
    • Concerns regarding related-party transactions remain.
  • A Closer Look At Enterprise Products Partners' Distributable Cash Flow As Of 1Q 2014
    Sun, May. 11 EPD 12 Comments

    Summary

    • Strong DCF coverage ratios.
    • Growth in DCF per unit exceeding growth in distributions.
    • Favorable structure: no IDRs, low leverage, breadth and diversification.
    • Plan to build a fully-refrigerated ethane export facility on the Texas Gulf Coast is of major significance.
    • Remains a core MLP holding.
  • A Closer Look At El Paso Pipeline Partners' Distributable Cash Flow As Of 1Q 2014
    Wed, May. 7 EPB 3 Comments

    Summary

    • No growth in revenues or Adjusted EBDA.
    • DCF per unit declining, but coverage of 7.8% yield is still positive, albeit tight.
    • Management conservatively aligned distribution to DCF, halt in distribution growth was warranted.
    • $1.3 billion capital expansion program targeted at taking advantage of surge in demand for natural gas.
    • Main concerns: zero growth in near term, KMI (general partner) conflict of interests.
  • A Closer Look At Kinder Morgan Energy Partners' Distributable Cash Flow As Of Q1 '14
    Tue, May. 6 KMP 24 Comments

    Summary

    • Marked deceleration in growth of Adjusted EBDA per unit for the past 3 quarters and TTM ended 3/31/14.
    • Coverage ratios based on sustainable DCF are significantly lower than the coverage ratios reported by KMP.
    • KMP will require KMI waivers of IDR payments to meet its 2014 distribution.
    • Better performance in 1Q14 especially from the Natural Gas Pipelines, but also from Terminals and CO2 .
    • Capital expansion program targeted at taking advantage of surge in demand for natural gas.
  • Model For Assessing The Sustainability Of American Capital Agency Corp.'s Dividend
    Wed, Apr. 16 AGNC 14 Comments

    Summary

    • Unrealized gains and losses on the bulk of AGNC’s assets do not appear on the income statement.
    • Net interest income does not include all the expenses of interest rate swaps.
    • Non-GAAP based model is required to assess dividend sustainability.
    • Despite leverage, net interest spreads and book values in 4Q13 and 2013 being below last year’s levels, the model indicates the current dividend rate is sustainable.
  • Model For Assessing Sustainability Of Annaly's Dividend
    Sun, Apr. 13 NLY 6 Comments

    Summary

    • Unrealized gains and losses on the bulk of NLY’s assets do not appear on the income statement.
    • Net interest income does not include all the expenses of interest rate swaps.
    • Non-GAAP based model is therefore required to assess dividend sustainability.
    • Following 8 consecutive quarters model of non-sustainable dividends, model now indicates current dividend rate is sustainable.
  • 2-Year Performance Comparison Of Selected MLPs
    Tue, Apr. 1 BPL, BWP, EPB 9 Comments

    Summary

    • As an asset class, MLPs have been highly correlated with, but underperformed, the S&P 500 for the past 2 years.
    • The underperformance has been pronounced in the latest 12 months.
    • EPD, MMP and NGLS have exhibited consistently superior unit holder returns for the past two years.
    • BWP, SPH and WPZ have exhibited consistently poor unit holder returns for the past two years.
    • EPD, MMP and PAA have exhibited strong coverage of sustainable DCF coverage over total distributions.
  • A Closer Look At Magellan Midstream Partners' Distributable Cash Flow As Of Q4 2013
    Thu, Mar. 27 MMP 3 Comments

    Summary

    • Strong DCF coverage ratios; no material differences between reported and sustainable DCF.
    • Growth in DCF per unit exceeding growth in distributions.
    • Has not issued additional partnership units in over 3 years.
    • Favorable structure: no IDRs, low leverage.
    • Premium price vs. other MLPs justified.