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Salient Midstream & MLP Fund Announces 25% Distribution Increase To Maximize Shareholder Value And Releases Unaudited Net Asset Value As Of November 30, 2021

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HOUSTON, Dec. 7, 2021 /PRNewswire/ -- Salient Midstream & MLP Fund (the "Fund" or "SMM") (NYSE: SMM) provided today a summary of its unaudited statement of assets and liabilities and announced Net Asset Value (NAV) as of November 30, 2021.

(PRNewsfoto/Salient Partners, L.P.)
(PRNewsfoto/Salient Partners, L.P.)

On November 30, 2021, the Fund's total assets were $192.8 million and the NAV per share was $7.63. On November 30, 2021, the closing share price of the Fund was $6.37, which represented a 16.5% discount to the NAV.1 The Fund's NAV and market price total returns for the month of November were -7.9% and -4.6%, respectively, compared to -7.6% for the Alerian Midstream Energy Select Index (AMEI).2

Continuing Actions Supporting Shareholder Value
The management team and the Board of Trustees have high conviction in the energy infrastructure asset class and believe it will continue to be essential to our economy and everyday life for decades. Energy markets have recovered meaningfully in 2021 and we believe they are positioned for a continued recovery in 2022.

As a result, the Board has approved a 25% increase in SMM's quarterly distribution from $0.07 per quarter to $0.0875 per quarter payable for the first quarter of 2022 ending in February. This meaningful distribution increase reflects our confidence in SMM's high quality portfolio and the potential growth in free cash flow and distributions in 2022. This increase follows the 16.67% increase in the quarterly distribution paid in August 2021. Going forward, the annualized distribution rate will be reviewed on a semi-annual basis in February and August each year and is expected to grow in-line with the growth in distributable cash flow in SMM's portfolio holdings.

SMM's 25% distribution increase aligns with our goal of maximizing shareholder value. Along with returning value to shareholders, following the distribution increase the portfolio management team anticipates continuing to have flexibility in cash flow to make investments with the most compelling total return potential. Net cash flow not distributed can be used as appropriate to reinvest in portfolio securities or adjust leverage to maximize shareholder value. The management team and the Board have evaluated over time, and will continue to evaluate, potential alternatives to benefit shareholder value including such distribution increases. The management team continues to believe that alternatives, such as share buybacks and special one-time distributions, do not benefit long-term shareholders because there is no measurable long-term lasting benefit to shareholders.

We believe the Fund's tax structure as a regulated investment company (RIC) remains superior to C-Corp closed-end fund structures as it avoids Fund-level corporate taxes that may negatively impact NAV in a rising market. In addition, the Fund's RIC structure is well suited to capitalize on changes in the overall energy infrastructure marketplace, including the shift from the master limited partnership (MLP) structure to a more traditional corporate structure that has transpired over the past five years as well as the emerging opportunities in renewables. The Fund has nimbleness in portfolio construction and the ability to adapt to these continuing secular changes in the energy industry without regard to Fund-level taxes otherwise incurred by a C-Corp fund.

Below is a comparison as of November 30, 2021 of how SMM compares to the Midstream RIC fund peer group and the Midstream C-Corp fund peer group:




Market Price

NAV

Name

Ticker

Market
Cap
($MM)

Price

Yield

Premium/
Discount

QTD

YTD

1
Year

3 Year
Annualized

QTD

YTD

1
Year

3 Year
Annualized

Salient Midstream &
MLP Fund

SMM

113.26

6.37

4.4%

-16.5%

1.4%

56.1%

57.9%

-2.6%

-1.0%

37.9%

40.1%

-3.8%

Average Midstream
RIC Fund Excluding
SMM


193.84


7.1%

-18.0%

-1.0%

36.6%

52.7%

-13.6%

0.1%

34.3%

38.8%

-12.7%

Average Midstream C-
Corp Fund


256.84


8.0%

-14.6%

1.1%

58.2%

61.5%

-17.5%

-0.4%

43.4%

48.5%

-16.6%

Source: Salient Capital Advisors, LLC, November 30, 2021. For illustrative purposes only. Past performance is not indicative of future results. No investment strategy can guarantee performance results. All investments are subject to investment risk, including loss of principal invested.

Most importantly, SMM's 3-year annualized total return (based on market price) of -2.6% has meaningfully outperformed the RIC Average of -13.6%. Likewise, on an NAV basis, SMM's 3-year return of -3.8% compares favorably to the -12.7% return for the peer group. Since the Fund's inception, the portfolio management team has focused on generating top-tier total returns rather than focusing on yield. That said, with today's 25% distribution increase announcement, SMM's yield will increase to 5.5% making it more competitive with the yield of its RIC fund competitors, while still providing the team with the flexibility to invest in compelling total return companies which may have lower distribution yields.

Compared to the C-Corp funds, SMM's 3-year total return on market price of -2.6% meaningfully outperformed the average C-Corp fund return of -17.5%. Similarly, SMM's 3-year NAV return is -3.8% compared to -16.6% for the average C-Corp fund. While SMM's yield is lower than the average C-Corp fund, this is primarily due to the much larger allocation to higher-yielding MLPs generally found in the C-Corp funds.

Furthermore, per the Fund's press release on March 16, 2020, management prudently and proactively reduced leverage in SMM prior to the 52% drop on the AMEI between March 1 and March 18, 2020. The Fund's investment adviser proactively reduced leverage by 69% in late February due to concerns about COVID-19, with the objective of paying off leverage in early March. Subsequent to the press release, the Fund did indeed pay down leverage to zero in early March and managed the Fund without leverage for the remainder of the month as the COVID-19 pandemic spread. Based on a review of all other Midstream closed-end funds, we believe that SMM was the only fund that acted decisively to pay off leverage prior to the decline which meaningfully benefitted its shareholders. In April 2020, management prudently increased the Fund's leverage to its 25% target level as we gained confidence that systemic risks had abated following decisive actions from the Federal Reserve as well as the coordinated OPEC+ crude oil production cuts. Leverage has remained near the 25% target levels since that time.

November Market Commentary
After strong year-to-date performance, the AMEI fell 7.5% and crude oil declined by 20.4% in November as the Omicron variant of COVID-19 worried investors about potential lockdowns around the world that could reduce demand for oil and gas. In addition, President Biden and the U.S. Department of Energy announced the release of 50 million barrels of crude oil from the Strategic Petroleum Reserve (SPR) in an attempt to reduce gasoline prices for Americans over the short-term.

Investors are now looking towards 2022 with a keen eye on oil and gas volume recovery as drilling activity improves and capital allocation focused on reducing debt and returning excess cash to investors. We continue to believe that excess cash flow generation above distributions will be used by Midstream companies for distribution increases and other actions that will benefit SMM's shareholders.

Despite the short-term decline in crude oil, commodity analysts continue to see a tight supply environment for both oil and gas into 2022 as energy demand appears to be growing and resilient. We believe that current prices are sufficient to lead to U.S. volume growth in 2022, with increases in production geared towards the second half of 2022. The promise of these incremental volumes should be supportive of Midstream stock prices and increases in free cash flow for Midstream companies.

The Fund's Top 10 holdings as of November 30, 2021 are shown below:3

No.

Symbol

Name

Country

Asset Type

% of Gross
Assets

1

-

EMG Utica | Offshore Co-Investment LP

United States

C-Corp

9.1%

2

ET

Energy Transfer, L.P.

United States

MLP

7.5%

3

TRGP

Targa Resources Corp.

United States

C-Corp

6.4%

4

LNG

Cheniere Energy Inc.

United States

C-Corp

6.2%

5

OKE

ONEOK Inc.

United States

C-Corp

6.0%

6

MPLX

MPLX, L.P.

United States

MLP

6.0%

7

ENB

Enbridge Inc.

Canada

C-Corp

5.6%

8

WMB

The Williams Companies Inc.

United States

C-Corp

4.8%

9

PAGP

Plains GP Holdings, L.P.

United States

C-Corp

4.5%

10

PPL CN

Pembina Pipeline Corp.

Canada

C-Corp

4.3%






60.4%


For illustrative purposes only. Current and future holdings are subject to change and risk. Figures are based on the Fund's gross assets ex-cash. Source: Salient Capital Advisors, LLC, November 30, 2021.

The Fund's unaudited balance sheet as of November 30, 2021 is shown below:

Salient Midstream & MLP Fund

Balance Sheet

November 30, 2021

(Unaudited)



Assets

(in millions)

Investments

$191.7

Other Assets

0.3

Cash and Cash Equivalents

0.8

Total Assets

$192.8



Liabilities


Line of Credit Payable

$56.2

Other Liabilities

1.4

Total Liabilities

$57.6

Net Assets

$135.2



The Fund had 17.7 million common shares outstanding as of November 30, 2021.

Past performance is not indicative of future results.

Salient Midstream & MLP Fund is a Delaware statutory trust registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended. The Fund's investment objective is to provide a high level of total return with an emphasis on making quarterly cash distributions to its common shareholders. The Fund seeks to achieve that objective by investing at least 80% of its total assets in securities of MLPs and midstream companies. There can be no assurance that the Fund will achieve its investment objective.

This press release contains "forward-looking statements" as defined under the U.S. federal securities laws. Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "will," and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements are subject to certain risks and uncertainties that could cause actual future results to differ significantly from the Fund's present expectations or projections indicated in any forward-looking statements. These risks include, but are not limited to, changes in economic and political conditions; regulatory and legal changes; leverage risk; valuation risk; interest rate risk; tax risk; the volume of sales and purchase of shares; the continuation of investment advisory, administration and other service arrangements; and other risks discussed in the Fund's filings with the Securities and Exchange Commission. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. The Fund undertakes no obligation to publicly update or revise any forward-looking statements made herein. There is no assurance that the Fund's investment objective will be attained.

About Salient
Salient Partners, L.P. ("Salient") is a real asset and alternative investment firm that offers a suite of strategies focused on energy and infrastructure, real estate and tactical alternative investments. Institutions and investment advisors turn to Salient to build smarter, more efficient portfolios. Strategies are offered in the form of open- and closed-end funds and separately managed accounts. Salient was founded in 2002 and has offices in Houston and San Francisco. Learn more about Salient at www.salientpartners.com.

1 Past performance is not indicative of future results. Current performance may be higher or lower than the data shown. The data shown are unaudited. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares.
2
Source: Salient Capital Advisors, LLC and Alerian, November 30, 2021. Past performance is not indicative of future results. No investment strategy can guarantee performance results. The index reflects the reinvestment of dividends and income and does not reflect deductions for fees, expenses or taxes. The index is unmanaged and not available for direct investment. "Alerian Midstream Energy Select Index" and "AMEI" are trademarks of Alerian and their use is granted under a license from Alerian.
3 Fund shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Data are based on total market value of Fund investments unless otherwise indicated. The data provided are for informational purposes only and are not intended for trading purposes.

Cision
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SOURCE Salient Partners, L.P.