Portfolio Action Summary

• TransCanada (NYSE: TRP) added to the Conservative Portfolio. Buy below $62  

Buckeye Partners (NYSE: BPL) recently agreed to acquire an 80% interest in a South Texas midstream joint venture from leading global oil trader Trafigura AG for $860 million.

The venture will own and operate Trafigura’s marine terminal in Corpus Christi, Texas, an oil condensate splitter and liquefied petroleum gas (LPG) storage complex in the same city and three crude and condensate gathering facilities in the nearby Eagle Ford shale play.

The assets are backed by 7- to 10-year minimum throughput, storage and tolling guarantees from Trafigura, but will require an additional $240 million to $270 of capital spending by early 2016. Once the buildout is complete, Buckeye’s share of the joint venture’s EBITDA (earnings before interest, taxes, depreciation and amortization) will be expected to recoup its purchase price over 8.5 years. Counting the spending to come, the assets likely carry a price tag closer to 10 times EBITDA, but the partnership said it still expects the deal to boost its distributions per unit after 2016.

The current enthusiasm over oil condensate and LPG export opportunities made the deal palatable to investors who paid $80 per unit to participate in a secondary offering raising $540 million toward the Trafigura deal. Following the offering, Buckeye sold 10- and 30-year bonds worth $600 million.

In mid-August, the partnership issued 2.6 million units with the stated aim of reducing outstanding debt under its revolving credit facility.

The unit price rose 1% in August. BPL is a Buy up to $70.

Energy Transfer Equity (NYSE: ETE) reported second-quarter distributable cash flow (DCF) of $218 million, up from $180 million in the same period in 2013. The DCF provided a coverage ratio of 1.06x.

In July, ETE raised its distribution to $0.38 per unit for the second quarter, a 16% increase year-over-year. The coverage ratio was 1.06x. The new distribution equates to an annual yield of 2.5% at the recent price.

The unit price closed at a record on Sept. 9, and has rallied 13% since the end of July. ETE is the #3 Best Buy below $66.

Energy Transfer Partners (NYSE: ETP) reported second-quarter DCF of $538 million, up 11% over the same period a year ago. Distribution coverage improved to 1.10x from 1.03x in the same quarter in 2013.

ETP raised its distribution to $0.955 per unit, a 6.9% increase from a year ago, for a current yield of 6.6%.

In late August, ETP announced the successful completion of the pending merger with Susser Holdings (NYSE: SUSS).

The unit price has increased 4.6% since the end of July and large-scale call option buyers have been betting on further gains into next year. ETP is the #7 Best Buy below $65.

EnLink Midstream (NYSE: ENLC) unveiled plans to build a 45-mile, 8-inch condensate pipeline and six natural gas compression and condensate stabilization facilities in the Ohio River Valley to serve Utica Shale producers, at an estimated cost of $250 million. The pipeline will have an initial capacity of 50,000 barrels per day and is expected to be completed in the second half of 2015.

In August, ENLC reported earning $69.1 million in cash available for distribution in the second quarter, for a 1.91x coverage ratio relative to the declared distribution of $0.22 per unit, taking the annualized yield to 2.1% based on the recent price of $41.16.

The share price rebounded 8% in August, erasing the losses from July. ENLC is the #6 Best Buy below $44.

Enterprise Products Partners (NYSE: EPD) raised its distribution for the 40th consecutive quarter to $0.72 per unit, an increase of 5.9% year-over-year, for a current yield of 3.6%.

Second-quarter DCF came in at $954 million, up 3% from a year earlier. Distribution coverage remained robust at 1.4x. Enterprise retained $293 million of cash earnings for the quarter and $730 million during the first half of the year, money it can invest in new projects. These include the ethane export terminal under construction in Houston and possibly a new Bakken-to-Cushing crude pipeline, for which Enterprise began soliciting shipper commitments earlier this month.

The unit price has rallied 8% since the end of July. EPD is the top-ranked Best Buy below $42.50.

EQT Midstream Partners (NYSE: EQM) reported second-quarter DCF of $52.6 million, up from $20.7 million a year earlier. Distribution coverage stayed strong at 1.54x despite another 30% year-over-year distribution increase to $0.52 per unit, for a 2.2% current yield. The partnership said it would continue raising the per-unit distribution by three cents each quarter through the end of 2016.

During the quarter, EQM acquired the Jupiter gathering system from sponsor EQT (NYSE: EQT) for $1.2 billion. Jupiter gathers production in the Marcellus and includes some 35 miles of pipeline and two compressor stations.

The unit price is up 7% since the end of July, though still short of its June peak. Those who have not already done so can sell half their EQM position to lock in a 105% return since our Buy recommendation 13 months ago.

GasLog Partners (NYSE: GLOP) unveiled plans to purchase two LNG carriers, the Methane Jane Elizabeth and the Methane Rita Andrea, from sponsor GasLog (NYSE: GLOG) for $328 million. This would increase the partnership’s fleet from three to five vessels. Each of the vessels to be acquired has a cargo capacity of 145,000 cubic meters. The partnership expects to finance the acquisition with a combination of equity and the assumption of the vessel’s existing debt.

GasLog partners entered into a commitment with Citibank for a new $450 million credit facility to refinance the current debt on the vessels. This is the first acquisition for GLOP since it went public in May. GLOP retains the option to acquire 10 LNG carriers owned by its parent, and six more if certain performance requirements are met.

Following the completion of the acquisition, management plans to recommend to its board a quarterly distribution increase of $0.05625 to $0.0625 per unit, an increase of 15% over the minimum distribution specified at the time of the IPO. The resulting annualized distribution of approximately $1.74 per unit would represent a 5.7% yield at the current price.

Earlier, GasLog Partners reported DCF of $4.1 million from the period from May 12 (shortly after its IPO) to June 30.  EBITDA (earnings before interest, taxes, depreciation and amortization) was up 31.4% year-over-year, pro-forma. The unit price has dropped 9% since the end of July but remains up 15% since our May 9 recommendation. Buy GLOP on dips below $30.

Genesis Energy (NYSE: GEL) reported adjusted EBITDA rose 19% to $70.1 million for the second quarter. Revenue fell 6% to $1.01 billion. Total segment margin rose to $82.7 million, from $70.4 million a year earlier. Its three business segments, pipeline transportation, refinery services and supply & logistics grew 6%, 16% and 31% respectively.

Management credited favorable conditions in crude oil and strong performance of its refinery services segment. But the partnership also noted rising employment compensation and debt service costs, along with the drag from its heavy fuel oil distribution business. The SEKCO Pipeline, a joint venture with Enterprise Products Partners (NYSE: EPD) was completed in June and is expected to contribute to results in the current quarter.

Genesis generated total available cash before reserves of $55.5 million, up 21% from the same period a year ago. GEL increased its quarterly distribution for the 36th straight quarter to $0.565 per unit, up 10.9% from a year earlier. The current yield is 4.2%. The distribution coverage was 1.11x.

The unit price has increased 3% since the end of July, loitering within its long-term range. GEL is a Hold.

Holly Energy Partners (NYSE: HEP) reported a 21% increase in the second-quarter DCF to $43.5 million, a decrease in interest costs offsetting the effects of a turnaround at a customer’s refinery.

HEP declared its 39th consecutive quarterly distribution increase to $0.515 per unit, up 6.2% from the second quarter of 2013. Distribution coverage was a secure 1.44x. The current yield is 5.7%. The unit price has been on a tear over the last month, rallying 9%. HEP is a Buy below $40.

Kinder Morgan (NYSE: KMI) has pulled back to its 50-day moving average, dropping 10% since Aug. 20 to give up much of its gain following last month’s landmark $70 billion deal to buy out its affiliated MLPs.

Short interest in the stock has risen dramatically over the same span, as bears bet on further selling by the MLP limited partners following deal closing expected sometime this year. But the promised 2015 dividend of $2 per share provides a prospective yield of 5.3% at the current price, and should support the share price over the long run. KMI remains a Buy below $45, though we dropped its designation as a Best Buy last month in anticipation of near-term selling pressure.

Magellan Midstream Partners (NYSE: MMP) reported a 16% increase in second-quarter DCF to $195.8 million, which generated a distribution coverage ratio of 1.34x. The strong financial results were driven by increased demand in fee-based transportation and terminal services for refined products and crude oil.

Based on the strong quarter, management raised its 2014 DCF guidance by $30 million to $840 million and reiterated its commitment to increase annual distributions by 20% in 2014 and 15% in 2015.

The distribution of $0.64 per unit announced in July was up 20% from a year earlier. The current yield is 3.2%. The unit price is up 1% since the end of July. MMP is the #2 Best Buy below $90.

MarkWest Energy Partners (NYSE: MWE) reported a 26% increase in second-quarter DCF to $161.7 million, which provided 1.04x distribution coverage of its increased quarterly distribution of $0.88 per unit. The new payout moved 4.8% higher in a year’s time, and works out to a current yield of 4.6%.

MarkWest said it placed five major infrastructure projects into service during the quarter and announced seven new ones that will add 720 thousand cubic feet per day (MMcf/d) of processing capacity and 110,000 barrels per day of fractionation capacity.

Management narrowed its 2014 DCF guidance to $630 million to $670 million, raising the midpoint to $650 million.

The unit price is up 10% since the end of July, amid speculation that MarkWest’s growth opportunities in the Marcellus and the Utica might make it an attractive buyout candidate. MWE is our #5 Best Buy on dips below $77.

Navios Maritime Partners (NYSE: NMM) continues to grow its fleet, acquiring two 8,200-TEU container vessels for $117.7 million. The vessels are expected to be delivered in the fourth quarter of 2014 and will be chartered-out for minimum four years at $34,266 per day per vessel. The new vessels are expected to provide an additional $19 million in annual EBITDA. The company has sufficient funds on its balance sheet to pay for the acquisition cost but may finance part of this purchase with debt financing.

EBITDA for the quarter grew by $9.1 million to $54.2 million. The boost was due to a $6 million increase in revenue from the increased fleet size and $7.8 million in other income, offset by $3.7 million in additional fees. Available cash for distribution for the quarter came in at $35.4 million, up from $29.9 million in last year’s second quarter, providing distribution coverage of 1.04x. Management reiterated its commitment to the current quarterly distribution of $0.4425 per unit through the end of 2015. NMM is a Buy on dips below $17.70.