Portfolio Updates

First, a quick housekeeping note on our latest recommendation, Navios Maritime Partners LP (NYSE: NMM). In our discussion on taxation, we erred in stating that Navios is taxed as a master limited partnership (MLP). Though the firm is indeed organized as an MLP, it has elected to be treated as a corporation for US tax purposes, which means investors receive a 1099-DIV at tax time, as opposed to a Schedule K-1.

That’s good news for those investors who’d prefer to buy their shares in tax-advantaged accounts, such as an IRA, as well as those investors who balk at having to contend with K-1s.

As we’ve noted in past updates, it was only a matter of time until Lightstream Resources (TSX: LTS, OTC: LSTMF) would have to cut its dividend. That finally happened on Nov. 21, with the company announcing it would be halving its payout to CAD0.04 per month. In the short term, the dividend cut has been a negative, as investors dumped the stock, causing the share price to drop by as much as 8.9 percent.

But in the long term, this move should prove positive for the company’s fundamentals, as it frees up cash that should help the company finance its growth plan while servicing its considerable debt load. If management successfully executes on its new strategy, the market will ultimately reward it.

At the same time, the company has an enviable collection of assets focused on light crude oil. That makes the firm an attractive takeover candidate, particularly at current prices. As such, we think it makes sense to continue holding the stock while management implements its new strategy.

Lightstream reported that third-quarter production remained flat compared to the prior year’s quarter, at 45,160 barrels of oil equivalent per day (boe/d). Oil and natural gas liquids (NGLs) comprised about 78 percent of total production. However, management expects natural gas to eventually rise to about 30 percent of total production.

During the quarter, Lightstream invested CAD139 million in Exploration and Development (E&D) projects, drilling an additional 24 wells and brought 20 wells on line. Management expects to achieve average production of 47,000 boe/d for the year, which is toward the midpoint of its targeted range of 46,000 boe/d to 48,000 boe/d.

Cash flow for the quarter came in at CAD179.7 million, or CAD0.90 per share. For the year, cash flow is expected to drop by CAD15 million for the year, to between CAD665 million to CAD705 million, representing an all-in payout ratio of 114 percent.

BreitBurn Energy Partners LP (NSDQ: BBEP) reported third-quarter distributable cash flow (DCF) of $64.6 million, up 34 percent quarter-over quarter.

For the quarter, the firm drilled 54 wells and completed 19 workovers, which added a daily production of about 2,730 boe/d. Total net production for the quarter rose 26 percent to 33,700 boe/d.

Its liquids production saw significant increases due to the addition of assets in New Mexico and Oklahoma. Oil and NGL production grew 43 percent and now represent 61 percent of the company’s total production, up from 45 percent of its mix last year.

The LP provided a coverage ratio of 1.3x for the quarter, which should carry into the fourth quarter. Although the company plans to issue about $300 million in 7.875 percent Senior Notes due 2022, its distribution coverage is still expected to remain at a healthy 1.1x next year.

Breitburn raised its distribution to $0.4875 for the quarter, up 4.8 percent from the prior year’s quarter. The company announced it will switch to a monthly distribution schedule in 2014.

QR Energy LP’s (NYSE: QRE) third-quarter earnings before interest, taxation, depreciation and amortization (EBITDA) rose 13 percent to $69 million, despite a disruption to its production at its Arkansas, Louisiana and Texas operations. Production was up 5 percent sequentially to 18,040 boe/d. Higher realized commodity prices as well as lower expenses led to higher margins and boosted its bottom line.

Distributable cash flow rose 26 percent to $35 million, or $0.54 per unit, which covered its current distribution of $0.4875 by a solid ratio of 1.1x.

Year-to-date, QR Energy has only spent $110 million on acquisitions, which leaves it with $327 million in liquidity.

Natural Resource Partners LP (NYSE: NRP) reported third-quarter revenues fell 13 percent to $82.2 million due to the continued weakness of Central Appalachia coal. Metallurgical coal demand and pricing have slumped recently due to a slowdown in global steel production growth.

Distributable cash flow (DCF) was affected by a one-time payment of $46 million related to its acquisition of a 48.5 percent interest in OCI Wyoming. That brought DCF to $104.6 million, or $0.94 per share. Including the impact from OCI, its coverage ratio for the quarter stood at 1.7x. Absent the payment, the company’s coverage ratio comes in at 1.1x.

NRP remains focused on diversifying away from coal–currently about 60 percent of revenue–to soda ash and oil and gas. However, the company’s heavy exposure to coal will continue to hinder its growth for some time as it implements its plans to shift away from coal.

Bonavista Energy Corp (TSX: BNP, OTC: BNPUF) reported production revenues for the third quarter grew 31 percent, to CAD246.4 million, as net production grew 12 percent to 73,600 boe/d–in line with consensus estimates. Bonavista also benefitted from price increases in natural gas, oil and NGLs.

Funds from operations rose 46 percent, to CAD120.1 million, or roughly CAD0.61 per share.

During the quarter, Bonavista drilled 48 wells in its two core areas, Deep Basin and West Central Alberta. Management noted that its capital budget of CAD500 million to CAD550 million in 2014 will fund about 140 wells to 150 wells. It also released its outline to drill 1,650 wells in its two core areas by 2018. Although still dependent on cost structure and commodity pricing, Bonavista expects 5 percent annual growth with 5 percent dividend yield growth over that same timeframe.

Windstream Corp (NYSE: WIN) reported revenue fell 3 percent to $1.5 billion, while earnings fell 34 percent to $31 million, or $0.05 in earnings per share.

The company’s business services revenues grew 1 percent to $916 million. Consumer broadband services revenues rose 4 percent to $119 million. Its adjusted free cash flow was $262 million, up 54 percent.

Growth in the business channel combined with steady consumer results helped to offset greater wholesale declines due to a second step-down in carrier compensation rates during the third quarter.

Data and integrated services revenues were $407 million, an increase of 5 percent from the same period a year ago. Overall customer service revenues fell 3 percent to $324 million. Wholesale revenues took the biggest hit, falling 19 percent to $148 million due to lower intrastate access rates.

Windstream declared a dividend of $0.25 payable on Jan 15, 2014 to unitholders on record as of Dec. 31, 2013.

LRR Energy LP (NYSE: LRE) reported third-quarter production rose 4 percent to 6,611 boe/d. Management raised its full-year guidance by 75 boe/d to 6,450 boe/d.

Adjusted distributable cash flow rose 6 percent to $14 million, or $0.53 per unit, allowing the partnership to maintain a strong distribution coverage ratio of 1.1x, even as it raised its distribution to $0.4875, up 2.1 percent from a year ago.

During the quarter, LRR energy drilled and completed five wells in the Red Lake field in the Permian Basin. Both crude oil and NGL production were up 3 percent and 22 percent, respectively, due to increased recompletion activity at its Red Lake field operations.

Spyglass Resources Corp (TSX: SGL/OTC: SGLRF) reported funds from operations (FFO) rose more than 50 percent to CAD21.5 million. Average production was 16,455 boe/d with oil and NGLs comprising about 48 percent of total production. The results were in line with analysts’ expectations.

The company drilled 12 additional wells during the quarter. Management offered a 2013 exit production guidance of 16,000 boe/d to 16,500 boe/d. Year-to-date production averages 15,000 boe/d, up 10 percent from the same period last year.

PennantPark Investment Corp (NSDQ: PNNT) reported fourth-quarter net operating income (NOI) of $0.26 per share, which was consistent with consensus estimates. However, NOI still came in below its dividend of $0.28 per share.

During the quarter, gross originations totaled $187.2 million, up from $84.5 million for the same period a year ago. The company completed 13 investments, six in new companies and seven in its existing portfolio. Average yields on its new investments stood at a strong 12.4 percent. The company’s portfolio totaled $1.08 billion at the end of the quarter.

PNNT still has $400 million in liquidity, including capacity on its credit facility.

Memorial Production Partners LP (NSDQ: MEMP) reported third-quarter daily production grew 32 percent to 118.8 million cubic feet of gas equivalent (MMcfe).

The partnership reported distributable cash flow rose 52 percent to $22.6 million. Although the company reported a coverage ratio of 0.67x for the quarter, that doesn’t take into account a favorable impact from its $603 million Permian acquisition, which closed on Oct. 1. Factoring in the new deal, the company’s coverage ratio is 1.4x, well over its estimated 1.15x coverage ratio.

Memorial continued its hedging activities, with 83 percent of its current expected natural gas production hedged through the end of 2013 and 84 percent in 2014 and 2015. Crude oil is 74 percent hedged through the end of 2013 and 81 percent hedged through 2014 and 2015.

During the quarter, Memorial also completed a $319 million public offering, which added an additional 16.7 million shares to units outstanding.

However, with an expected 23 percent increase to distributable cash flow in 2014, it should still maintain a safe coverage ratio of 1.2x next year.

Artis REIT’s (TSX: AX-U, OTC: ARESF) third-quarter results beat analyst estimates by 8.9 percent for FFO, the fourth consecutive quarter in which it’s surpassed expectations for this metric. FFO is the relevant measure of a real estate investment trust’s (REIT) profits. It also bested forecasts for revenue by 3.5 percent.

The mix of analyst sentiment held steady at seven “buys” and three “holds,” while the 12-month target price declined slightly to CAD16.70. But that would still represent a 16 percent rise from the current unit price.

Student Transportation Inc’s (TSX: STB, NSDQ: STB) numbers for its fiscal 2014 first quarter (ended Sept. 30) beat analyst forecasts for earnings per share by 6 percent and also surprised to the upside on sales by 9.8 percent.

The mix of analyst sentiment includes two “buys,” three “holds,” and one “sell.” The 12-month target price is CAD7.19, which represents a 7.7 percent potential return above the current share price.