Analyzing Cash Flows of Master Limited Partnerships
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Author: Ron Hiram
Published: May 20, 2013
Suburban Propane Partners LP (SPH) markets and distributes fuel oil, kerosene, diesel fuel and gasoline to residential and commercial customers, and is now the third largest retail marketer of propane in the United States, measured by retail gallons sold. This article analyzes the most recent quarterly and the trailing twelve months (“TTM”) results of SPH and attempts to look “under the hood” to properly ascertain sustainability of Distributable Cash Flow (“DCF”). The task is not easy because the definitions of DCF and “Adjusted EBITDA”, the primary measures typically used by master limited partnerships (“MLPs”) to evaluate their operating results, are complex. In addition, each MLP may define these terms differently, making comparison across MLPs very difficult. Nevertheless, this is an exercise that must be undertaken to ascertain what portions of the distributions being received are really sustainable.
Comparison of selected performance metrics for the quarter and trailing twelve months (“TTM”) ended 12/31/12 to the prior year periods is set forth in Table 1 below: Continue reading SPH: A Closer Look at Suburban Propane Partners’ Distributable Cash Flow as of 1QFY 2013
Author: Ron Hiram
Published: May 19, 2013
This article analyzes the most recent quarterly and the trailing twelve months (“TTM”) results of Williams Partners, L.P. (WPZ) and looks “under the hood” to properly ascertain sustainability of Distributable Cash Flow (“DCF”). The task is not easy because the definitions of DCF and “Adjusted EBITDA”, the primary measures typically used by master limited partnerships (“MLPs”) to evaluate their operating results, are complex. In addition, each MLP may define these terms differently, making comparison across MLPs very difficult. Nevertheless, this is an exercise that must be undertaken to ascertain what portions of the distributions being received are really sustainable.
Effective January 1, 2013, management reorganized the businesses into geographically based operational areas. WPZ’s reorganized reportable segments are as follows:
- Northeast G&P: this midstream gathering and processing segment is in the early stages of developing large-scale energy infrastructure solutions for the Marcellus and Utica shale regions. It also includes a 51% equity investment in Laurel Mountain Midstream, LLC (“Laurel Mountain”) and a 47.5% equity investment in Caiman Energy II, LLC (“Caiman”);
- Atlantic-Gulf: this segment includes the Transcontinental Gas Pipe Line Company, LLC, WPZ’s major interstate natural gas pipeline (“Transco”). It also includes natural gas gathering and processing and crude production handling and transportation in the Gulf Coast region, a 50% equity investment in Gulfstream Natural Gas System L.L.C. (“Gulfstream”), a 60% equity investment in Discovery Producer Services LLC (“Discovery”), and a 51% consolidated interest in Constitution Pipeline Company, LLC (“Constitution”).
- West: this segment includes gathering, processing and treating operations in New Mexico, Colorado, and Wyoming and WPZ’s interstate natural gas pipeline, Northwest Pipeline GP (“Northwest Pipeline”).
- NGL & Petchem Services: this segment includes WPZ’s NGL and natural gas marketing business, an NGL fractionator and storage facilities near Conway, Kansas, a 50% equity investment in Overland Pass Pipeline (“OPPL”), and a ~83.3% interest in an olefins production facility in Geismar, Louisiana, along with a refinery grade propylene splitter and pipelines in the Gulf Coast region.
TTM segment operating income numbers based on the new reporting segments are not available. Table 1 below compares segment performance in 1Q13 vs. 1Q12: Continue reading WPZ: A Closer Look at Williams Partners’ Distributable Cash Flow as of 1Q 2013
Author: Ron Hiram
Published: May 14, 2013
This article analyzes the most recent quarterly and the trailing twelve months (“TTM”) results of Energy Transfer Partners, L.P. (ETP) and looks “under the hood” to properly ascertain sustainability of Distributable Cash Flow (“DCF”). The task is not easy because the definitions of DCF and “Adjusted EBITDA”, the primary measures typically used by master limited partnerships (“MLPs”) to evaluate their operating results, are complex and each MLP may define the terms differently, making comparison across MLPs very difficult.
In the case of ETP, the level of complexity is particularly high for several reasons. One is that in 4Q12 management changed its definition of Segment Adjusted EBITDA to reflect amounts for less than wholly owned subsidiaries based on 100% of the subsidiaries’ results of operations. In prior periods, amounts for less than wholly owned subsidiaries were reflected in Segment Adjusted EBITDA based on ETP’s proportionate ownership, such that the measure was reduced for amounts attributable to non-controlling interests. In periods prior to 4Q12, NGL Transportation and Services was the only segment that included a less than wholly owned subsidiary – the Lone Star joint venture. Lone Star is 70% owned by ETP and 30% by Regency Energy Partners, L.P. (RGP). It operates natural gas liquids storage, fractionation and transportation assets in Texas, Louisiana and Mississippi. In 1Q13, Segment Adjusted EBITDA includes not only 100% of Lone Star but also 100% of the Florida Gas Transmission Pipeline (“FGT”) and 100% of the Fayetteville Express Pipeline (“FEP”), even though ETP owns 50% of these latter two ventures and previously accounted for them using the equity method.
The structural changes ETP is undergoing adds another level of complexity and makes is exceedingly difficult to compare across periods, to say nothing of trying to draw forward looking conclusions based on ETP’s past performance. For example, ETP’s consolidated financial statements have been retrospectively adjusted to reflect consolidation of the Southern Union Company (“Southern Union”) into ETP beginning March 26, 2012 (the date ETE acquired Southern Union) and the consolidation of Sunoco, Inc. (“Sunoco”) beginning October 5, 2012 (the date ETP acquired it). These consolidations were enabled by the formation of a company called ETP Holdco (“Holdco”), an entity that was owned 40% by ETP and 60% by its general partner, Energy Transfer Equity L.P. (“ETE”). Subsequent to 1Q13 (on April 30, 2013), ETP acquired ETE’s 60% stake in Holdco for $3.75 billion (consisting of 2.35 billion newly issued ETP common units and $1.4 billion in cash). Also on that date, Holdco spun out to RGP its interest in Southern Union Gathering Company (“SUGS”), one of Southern Union’s subsidiaries, for $1.5 billion (consisting of $750 million of newly issued RGP units, $150 million of new RGP Class F units, and $600 million in cash). Net of closing adjustments for these two transactions, ETP paid ~$800 million using its revolving credit facility.
Revenues, operating income and net income data are provided in Table 1 below. I generally review TTM numbers, but in ETP’s case a TTM comparison of these parameters is not really useful given the changes in the businesses owned by ETP and the manner in which it accounts for them. In order to enable more meaningful comparisons I included in this Table 4Q12 data and pro-forma 1Q12 data. This pro-forma data incorporates Sunoco and Southern Union historical results, as well as the deconsolidation of the propane business following its contribution by ETP to AmeriGas Partners, L.P. (APU) in January 2012 in return for ~$1.46 billion in cash and ~29.6 million APU units: Continue reading ETP: A Closer Look at Energy Transfer Partners’ Distributable Cash Flow as of 1Q 2013
Author: Ron Hiram
Published: May 13, 2013
This article analyzes the most recent quarterly and the trailing twelve months (“TTM”) results of Plains All American Pipeline L.P. (PAA) and looks “under the hood” to properly ascertain sustainability of Distributable Cash Flow (“DCF”).
Revenues, operating income, net income and earnings before interest, depreciation & amortization and income tax expenses (EBITDA) for the periods under review are presented in Table 1 below. Given quarterly fluctuations in revenues, working capital needs and other items, a review of TTM numbers tends to be more meaningful than quarterly numbers for the purpose of analyzing changes in reported and sustainable distributable cash flows. However, I present both: Continue reading PAA: A Closer Look at Plains All American Pipeline’s Distributable Cash Flow as of 1Q 2013
 Author: Ron Hiram
Published: May 11, 2013
This article analyzes the most recent quarterly and the trailing twelve months (“TTM”) results of Enterprise Products Partners L.P. (EPD) and looks “under the hood” to properly ascertain sustainability of Distributable Cash Flow (“DCF”). The task is not easy because the definitions of DCF and “Adjusted EBITDA”, the primary measures typically used by master limited partnerships (“MLPs”) to evaluate their operating results, are complex. In addition, each MLP may define these terms differently, making comparison across MLPs very difficult. Nevertheless, this is an exercise that must be undertaken to ascertain what portions of the distributions being received are really sustainable. For example, MLPs distributions that are funded by issuing debt or through issuance of additional partnership units cannot be considered sustainable. In a downside scenario, MLPs that finance distributions from unsustainable sources or are totally reliant on debt and equity to finance growth capital will suffer significantly greater price deterioration.
Revenues, operating income, net income and earnings before interest, depreciation & amortization and income tax expenses (EBITDA) for the periods under review are presented in Table 1 below. Given quarterly fluctuations in revenues, working capital needs and other items, a review of TTM numbers tends to be more meaningful than quarterly numbers for the purpose of analyzing changes in reported and sustainable distributable cash flows. However, I present both: Continue reading EPD: A Closer Look at Enterprise Products Partners’ Distributable Cash Flow as of 1Q 2013
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About Ron Hiram
Ron Hiram currently manages investment portfolios and assists earlier stage companies in their capital raising efforts. His career includes serving as Managing Partner of Eurofund 2000 L.P., an Israeli venture capital fund; Partner and co-head of the Israeli operations of TeleSoft Partners, a Silicon Valley based venture capital fund; Managing Director and Partner at Soros Fund Management and Soros Private Equity Partners, New York; and Managing Director of a workout and restructuring group at Lehman Brothers, New York. Mr. Hiram also served as Chairman of the Board of Comverse Technology, Inc. (CMVT), as a board member of other private and public companies, and as CEO of a telecom start-up. Read More
About this Website The website explains how distributable cash flow (DCF) is defined and why it is important to analyze it and derive a sustainable measure of DCF. Results reported by master limited partnerships (MLPs) are analyzed. comparisons of reported DCF to sustainable DCF are generated, and various coverage ratios and reports analyzing performance are generated. Simplified sources and uses of funds statements are presented to focus readers' attention on key cash flow items. The website also features general articles about MLPs and about other topics of interest to yield-focused investors.
Disclaimer Disclaimer: The documents and opinions in this website are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the securities mentioned or to solicit transactions or clients. The information in this website is believed, but not guaranteed, to be accurate. All content on this website is presented as of the date published, is not updated and may be superseded by subsequent market events or for other reasons Under no circumstances should a person act upon the information contained within without first conducting his/her own independent research and consulting with his/her investment advisor and tax professional as to whether such action is suitable based on the investor’s investment objectives, personal and financial situation, and specific legal or tax situation.
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