HOUSTON, Jan. 6, 2022 /PRNewswire/ -- Salient
Midstream & MLP Fund (the "Fund") (NYSE: SMM) provided today a
summary of unaudited statement of assets and liabilities and
announced Net Asset Value (NAV) as of December 31, 2021.
On December 31, 2021, the Fund's
total assets were $187.0 million and
the NAV per share was $7.48. On
December 31, 2021, the closing share
price of the Fund was $6.74, which
was trading at a 9.89% discount to the NAV.1 The Fund's
NAV and market price total returns for the month of December were
-0.5% and 5.8%, respectively, compared to 1.7% for the
Alerian Midstream Energy Select Total Return Index
(AMEIX).2
December Market Commentary
December began with worries about an Omicron driven global
slowdown. Midstream as measured by the AMEIX index was down 3%
through December 20th until positive
headlines emerged that the omicron variant is relatively mild
compared to previous COVID-19 variants. The AMEIX Index then staged
a rebound into year end, finishing the month up
1.7%.2
For 2022, we remain positive as we believe 1) free cash flow
after dividends is poised to increase over 35% for 2022, 2) volumes
may recover as drilling activity improves and 3) capital allocation
remains focused on reducing debt and returning excess cash to
investors through buybacks and potential dividend
increases.3 We continue to believe that a portion
of excess cash flow generation above dividends must be used for
buybacks to sustain the current equity price recovery into
2022.
Crude oil recovered during the month of December but remained
about 10-15% below the $85+ level from late
October.4 Crude oil as measured by West Texas
Intermediate (WTI) was up 12.5% to $75.21 in December.4 We continue to
believe that crude oil prices in the $60 to $80 range
are positive for long-term investment in the American energy
industry. Commodity analysts continue to see a tight supply
environment for both crude oil and natural gas in 2022 as energy
demand appears to be resilient despite the current COVID-19 wave.
We believe that current commodity prices are sufficient to lead to
U.S. volume growth in 2022, with increases in production already
showing up in recent Energy Information Administration (EIA)
numbers. The promise of these incremental volumes should be
supportive of midstream names going forward.
As we begin 2022, we believe the below themes will be integral
to the energy infrastructure sector.
1. Strong Capital
Discipline
a. Capital
expenditure (capex) remains well below 2019 and 2020 levels.
b. Many companies have underutilized assets and
only need to spend on sustaining capex.
2. Free Cash Flow (FCF)
Accelerates
a.
Industry FCF grows as capital projects are completed and spending
comes down.
b. We believe free cash flow after
dividends is expected to grow in 2022.
3. Deleveraging
Continues5
a. Leverage
has declined from 4.7x in 2020 to ~4.3x today.
b. We see the potential for midstream leverage to
decrease below 4.0x by 2023.
4. Buyback Capacity Improves
a. 2021
was a focus on balance sheets.
b. 2022 will allow companies to direct more
capital to buybacks.
5. Growth and Improving Rate of
Change
a. Earnings
before income, tax, depreciation and amortization (EBITDA)
Growth6
b. Dividend Growth
c. Volume Growth
d. Tariff Growth
e. Buybacks
6. Energy Transition is
Accelerating
a. Strength
in solar & battery storage.
b. Renewable fuels continue to ramp and capture
capex.
c. Carbon capture opportunities continue to
accelerate.
EMG Utica Pricing Update
Salient Capital Advisors, LLC (the "Adviser") in December 2021 identified an error in the
valuation of the EMG Utica portfolio asset, which was corrected on
December 31, 2021, resulting in the
restatement of the fund's NAV for the period August 19, 2021 until December 30, 2021. The error resulted in an
overstatement of NAV having an impact varying between approximately
$0.07 and $0.11 per share during the period. The
Adviser identified that a variable input had instead been hard
coded in the model used for fair valuation of this investment,
resulting in an error in the fair valuation of the
investment. The improperly hard coded input was corrected and
the fair valuation reflected on December
31, 2021. The correction resulted in the need for
restatement of the Fund's NAV for the period noted above, and the
error resulted in a reimbursement to the Fund by the Adviser of
approximately $5,600 in advisory
fees. The proper valuation will be reflected in the Fund's
audited financial statements for the period ended November 30, 2021, when issued.
The Fund's Top 10 holdings as of December
31, 2021 are shown below:7
No.
|
Symbol
|
Name
|
Country
|
Asset
Type
|
% of Gross
Assets
|
1
|
ET
|
Energy Transfer,
L.P.
|
United
States
|
MLP
|
9.2%
|
2
|
-
|
EMG Utica | Offshore
Co-Investment LP
|
United
States
|
C-Corp
|
7.5%
|
3
|
TRGP
|
Targa Resources
Corp.
|
United
States
|
C-Corp
|
6.6%
|
4
|
MPLX
|
MPLX, L.P.
|
United
States
|
MLP
|
6.2%
|
5
|
LNG
|
Cheniere Energy
Inc.
|
United
States
|
C-Corp
|
6.1%
|
6
|
OKE
|
ONEOK Inc.
|
United
States
|
C-Corp
|
6.0%
|
7
|
ENB
|
Enbridge
Inc.
|
Canada
|
C-Corp
|
5.3%
|
8
|
WMB
|
The Williams
Companies Inc.
|
United
States
|
C-Corp
|
4.7%
|
9
|
PAGP
|
Plains GP Holdings,
L.P.
|
United
States
|
C-Corp
|
4.7%
|
10
|
ETRN
|
Equitrans Midstream
Corp.
|
United
States
|
C-Corp
|
4.7%
|
|
|
|
|
|
61.0%
|
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, December 31,
2021.
|
The Fund's unaudited balance sheet as of December 31, 2021 is shown below:
Salient Midstream
& MLP Fund
|
Balance
Sheet
|
December 31,
2021
|
(Unaudited)
|
|
|
Assets
|
(in
millions)
|
Investments
|
$186.5
|
Other
Assets
|
0.2
|
Cash and Cash
Equivalents
|
0.3
|
Total
Assets
|
$187.0
|
|
|
Liabilities
|
|
Line of Credit
Payable
|
$54.0
|
Other
Liabilities
|
0.4
|
Total
Liabilities
|
$54.4
|
Net
Assets
|
$132.6
|
|
|
The Fund had 17.7
million common shares outstanding as of December 31,
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, December 31, 2021. "Alerian Midstream Energy Select
Index," "Alerian Midstream Energy Select Total Return Index,"
"AMEI" and "AMEIX" are trademarks of Alerian and their use is
granted under a license from Alerian. Past performance is not
indicative of how the index will perform in the future. The index
reflects the reinvestment of dividends and income and does not
reflect deductions for fees, expenses or taxes. The index is
unmanaged and is not available for direct investment. Alerian
Midstream Energy Select Total Return Index (AMEIX) is a total
return composite of North American midstream energy infrastructure
companies that are engaged in activities involving energy
commodities. The capped, float-adjusted, capitalization-weighted
index is disseminated in real time on a price-return basis.
Inception date of the AMEIX is April 1, 2013.
3 Source: Wells Fargo, December 2021. Free cash
flow is the cash left over after a company pays for its
operating expenses and capital expenditures (capex).
4 Source: Bloomberg, December 2021.
5 Leverage is the use of borrowed
capital for (an investment), expecting the profits made to be
greater than the interest payable.
6 Earnings before interest, taxes, depreciation
and amortization is a measure of a company's overall financial
performance and is used as an alternative to simple earnings or net
income in some cases.
7 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.