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.
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.
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SOURCE Salient Partners, L.P.