The 6.5% NOI yield the company quotes is net of management fee paid to FIG. You should also note that the management team at SNR gets paid $0 - FIG pays them as FIG employees. If we paid our CEO/CFO and all others from FIG market rates of compensation, I am sure it exceeds the management fee they are earning now.
In terms of how SNR trades, take a look at the ownership table, a lot of REIT index products own a lot of SNR. After SNR was spun out, the stock traded up to over $20, I am sure this was driven by the index funds that had to own the shares regardless of price. The good news is when we have to issue equity for future acquisitions, we have a natural buyer, the index funds.
Lastly, our interests as SNR shareholders are aligned with FIG. This is a core business for Fortress, creating companies and value. If people lost money on all their deals, Fortress would have no business. Of course, Fortress also owns just under 5% of the company directly.
My guess is we will hear of another large deal for SNR in the not so distant future and they will need to issue more equity to finance. They already have a debt conduit lined up based on their latest refi. SNR/FIG will build this up to a $1.50 - $1.60 annualized divvy by the end of 2015. Assuming a 5.5% yield, gives you a share price in the high 20's by year-end. Risk-adjusted, given the stability of the cash flows, this will be a very attractive return.
You have no idea what you are talking/writing about - you obviously do not know what you own. SNR is an acquisition driven REIT. The $435 MM recent acquisition is a fantastic transaction earning a 6.5% NOI yield on a leveraged basis. It's accretive in terms of cash flow and allows the company to keep raising the divvy. They will do more deals and issue equity as each deal comes along. They have a pipeline of over $2 B of potential acquisition candidates. The recent deal plus the refinance of the debt will result in a meaningful increase in the divvy. HC REITs trade around 5-6% and its trading right in the middle at 5.5%. My estimate is the stock migrates closer to $23 over next 4-6 months once the 2Q divvy is posted while holding a 5.5% yield. The rule of thumb is each acquisition is about $0.10 accretive for every $100 MM of equity they issue in an acquisition assuming about 30-40% equity, remainder debt and a NOI of 6.5%
This is an acquisition vehicle and we are just about in the 2nd inning. The company has reached a level of scale and now has access to public markets that the banks are comfortable lending at under 3% against the asset portfolio. As a result, the company's scale and ability to finance using a blended cost of capital of around 4% at 50/50 debt/equity creates an arbitrage relative to the acquisition market if you can buy at a yield of 6-8%. Any improvement in occupancy, efficiencies and/or pricing enhances the arbitrage. They could also finance with more debt and widen the arbitrage as well, but at some point too much debt, compresses the trading multiple.
It will be interesting to see as the company matures if they complement the acquisition strategy with a build - my guess is that will a few years in the future.
Just listened to last call and reviewed their presentations. Near term over next there months, it looks like we have about $0.20 NFFO upside, if not more, based on debt refi and $435 MM acquisition. I bet there is another acquisition right after this one. It also sounds like there is another $0.10 of upside from efficiency gains. My guess we go out of 2015 with a quarterly divvy of around $0.33 - $0.35. At a 5.5% yield, that implies a $24 - 26 share price from here. This is all before any new acquisitions - I smell a double in this one........
Good point on TRGP. My guess is they bit off quite a lot with APL and it will take some time to integrate before they do another acquisition.
You can make a case of a Cohen discount on ARP. Arguably, ARP has among the best assets for a GP/LP structure yet it trades at over 13%. The coal-bed methane assets and the Rangely Field oil assets are long-lived slow decline assets. You could also say the same for the Barnett gas shallow assets but just not that profitable at this gas price. The fast decline Utica, Marcellus and Mississippi Lime fields make the most sense for the syndicate business. So overall, a nice mix of assets.
My guess is once commodity prices start to rise, the Cohen discount will start to narrow. I actually think they did the right thing taking down the distribution to $1.30. They have reset expectations lower, not incorporated any savings on the service side in their numbers even though they are realizing the savings currently, and lowered the bar for the syndicate raise in 2015. Furthermore, higher distribution coverage should result in a lower trading yield over time. No much has to go right to create a positive surprise.
Management is re-loading all of their incentive plans at ATLS at this lower price in the $8s. They have a huge incentive to get the IDRs back in the money over the next year. This is why I am reloading down here - after Friday I'm up to 150,000 units and plan to keep buying more.....
Despite the over-promising, the Cohen's have actually delivered among the best returns to the GP's in the entire MLP space. I made a boatload when they sold to Chevron and then reformed the GP with ARP & APL as the LP's and I loaded up at around $8 in the old ATLS. It was a four-bagger over 4 years. Selling APL to TRGP turned out to be a brilliant move. Imagine if ATLS still controlled APL over last few months - old ATLS would not have ended at $32 but probably all the way back to $8 given the amount of capital APL needs. The one thing I do know, own what the Cohen's own and that is the GP. I am loading up again at $8 in the new ATLS. From here, you don't even need the Cohen's to do anything, all you need is the commodity price to recover half of what it has lost to double your money.
I agree with the sentiment that GP/LP structure is not optimal for an E&P company with depleting assets with the constant need for capital. At some point, the Cohen's will use the value of the GP to acquire assets to drop down into ARP. I also suspect they will try to get more involved with ARCX in the storage business to take advantage of contango in the oil markets. I wouldn't be surprised if they somehow found a way into the pipeline business again. They will not sit on their hands as this opportunity set caused by commodity price decline opens up.
Globally, look at the price of Brent to WTI, it's widened out to $10 from $0 in January. This tells me we just have a logistics and production problem in US. A year from now, production will be about 8.3 MM BBD vs. 9.3 today. We will be talking about shortages!!
Lastly, hold onto your TRGP. It won't be around until the end of the year. My guess is either Kinder, Enterprise or Williams will buy it. All three have enormous cost of capital advantage relative to TRGP. Plus TRGP just created a huge tax asset with the purchase of APL. Would not be surprised if TRGP got bought at $140 in 2015.
The GP trading at a higher yield than the LP makes absolutely no sense. This places no value on the GP IDRs. They may not be earning on the IDRs, we are only $0.30 annually at ARP from the IDRs being fully in the money. Therefore, an option value is warranted for the IDR exposure now. Furthermore, the GP puts up absolutely no capital for full control of the LP and also benefits when the LP uses capital for accretive activities such as acquisitions. Lastly, if the commodity price recovers only half of what it has declined in the last 6 months, ARP's distribution will rise by 50% but ATLS will go up by 100%.
This is why all GPs trade at a lower yield than their underlying LPs.
At the end of February, ATLS issued Series A Convertible Preferred to Leon Cooperman and Management for $40 MM Cash. The shares are convertible at a minimum of $8, or based on a trailing average trading level over 30 days. Cooperman and management appears to have little incentive for the shares/units to trade much above $8 until the end of March. Terms of the preferred look very favorable - a sweetheart piece of paper with an escalating coupon starting at 10% I believe. Unfortunately, depending how the cash proceeds were used, our common units were diluted by this piece of paper by an estimated 15%. Put another way, I believe our distributions would be more like $0.85 - $0.95 had this paper not been issued.
Given Cooperman's support for the company and his 15% ownership stake, I am not that offended by the dilution attributed to him. Management on the other hand is more troubling.
At the end of the day, both ARP and ATLS are a call option on rising commodity prices.
Wrong! If you read the terms of the deal, NGLS unit holders did not have a vote. Only ATLS, APL & TRGP held a vote. The GP TRGP determined what was best for NGLS.
You will receive 0.1809 shares of TRGP for each ATLS you currently hold, $9.12 of cash for each ATLS share and a new share of ATLS for every 2 shares you currently hold. Split adjusted your new ATLS shares will start trading tomorrow on a when issued basis and should start trading around $9-10 per share based on recent trading prices for all of the above.
NGLS is now predicting Distribution growth of 12-15% with Atlas, it was forecasting 8-10% without Atlas. This of course assumes commodity average commodity prices that are above current levels. You could say this for both pre- and post- Atlas, so it is apples-to-apples. On this basis, transaction is not dilutive but accretive.
In the case of TRGP, Distribution growth is now forecast of up to 35% in 2015 vs 25% without Atlas. Very accretive to the GP. Interestingly, most of the incremental growth is coming from the tax benefits of the transaction.
The proxy vote ends today. Highly likely deal has been approved by all parties. Closing is on the 27th/28th.
Post TRGP/ATLS merger, TRGP will be a target of KMI. I don't believe TRGP makes it through 2014 as a standalone.
Regarding where TRGP should trade relative to yield. Historically, MLPs in a stable commodity is environment are only half correlated to commodity prices. They become highly correlated in an unstable commodity price environment. In a stable environment, MLPs are highly correlated to interest rates. Once commodity prices stabilize, MLPs will go back to their historical spreads to 10-year treasuries. Based on this view, TRGP could actually trade at an even lower yield than 2.5%.
Given the takeover potential, the dividend growth rate in next 2 years (mainly driven by tax) and the spread to treasuries, TRGP could double from here.......