Last week saw a flurry of new MLP IPO filings. Natural gas producer Rice Energy (NYSE: RICE), which had its own IPO in January, filed an initial registration statement with the Securities and Exchange Commission (SEC) to raise up to $425 million for Rice Midstream Partners (TSX: RMP).

Initial assets will consist of:

• A 2.8 million dekatherm per day (MMDth/d) high-pressure dry gas gathering system and associated compression in Washington County, Pennsylvania, with connections to the Dominion, TCO, EQT and TETCO interstate pipelines

• A 420 MDth/d high-pressure dry gas gathering system in Greene County, Pennsylvania, with connections to Dominion, TCO and NFGS interstate pipelines.

Rice Midstream Partners has secured dedications from Rice Energy under a 15-year, fixed-fee contract for gathering and compression services in Washington and Greene counties in the Marcellus Shale and any future acreage it acquires within these counties, other than in select areas subject to pre-existing third-party dedications. The partnership has also secured dedications from third-party customers under fixed-fee contracts for gathering and compression services in Washington County, Pennsylvania with respect to approximately 21,000 acres, and any future acreage they may acquire within areas of mutual interest of approximately 66,000 acres. The partnership is expected to produce $55.7 million in earnings excluding items (EBITDA) over the next 12 months.

Navios Maritime Midstream Partners (NYSE: NAP), a recently formed wholly-owned subsidiary of Navios Maritime Acquisition Corp (NYSE: NNA), an owner and operator of tanker vessels, filed for a $162 million IPO of 8.1 million common units representing limited partner interests in Navios Midstream.

Initial assets consist of four very large crude carriers (VLCCs), which have an average remaining employment term of approximately 7.7 years. They are chartered to Cosco Dalian, which is wholly owned by the Chinese state-owned COSCO Group, and Formosa Petrochemical, a $23 billion company listed in Taiwan.

Navios Maritime Acquisition owns 44 vessels, including 29 product tankers, 11 VLCCs and four chemical tankers. Navios Midstream will have the right to purchase seven additional VLCCs from Navios Maritime Acquisition.

The IPO is expected to price between $19 and $21 per unit. For the 12 months ending September 30, 2015 the partnership is projected to have $34.6 million available for distribution, The projected yield at the midpoint of the offering is 8.5%, and as with most marine shipping partnerships, this one has elected to be treated as a corporation for U.S. federal income tax purposes, paying dividends reported on form 1099.

Terryville Mineral & Royalty Partners (TRVL) was formed by Memorial Resource Development (NYSE: MRD) to own and acquire royalty interests and mineral interests from MRD and third parties. Memorial Resource is an independent natural gas and oil company with a majority of its activity in the Cotton Valley formation in North Louisiana. TRVL owns royalty interests in 44 of Memorial Resource’s 46 existing horizontal producing wells as well as in the undeveloped acreage surrounding these 44 wells.

TRVL filed with the SEC to raise up to $150 million in an IPO. The business model is similar to that of Viper Energy Partners (NASDAQ: VNOM), which we covered previously (and which is down nearly 37% since its debut). However, unlike VNOM, which has a variable distribution, TRVL will pay a minimum quarterly distribution.

Finally, a more unconventional offering in Landmark Infrastructure Partners (LMRK), which was formed by Landmark Dividend to acquire, own and manage real property interests in the wireless communications, outdoor advertising and renewable power generation industries. These property interests include cellular towers, rooftop wireless sites, billboards and wind turbines.

Approximately 88% of leased tenant sites are occupied by large, publicly traded companies (or their affiliates) with a national footprint. Tenants include AT&T Mobility, Sprint, T-Mobile and Verizon in the wireless carrier industry, American Tower, Crown Castle and SBA Communications in the cellular tower industry and CBS Outdoor, Clear Channel Outdoor and Lamar Advertising in the outdoor advertising industry.

The IPO is for 3 million units expected to price between $19 and $21. At the midpoint that would raise $60 million. The partnership agreement provides for a minimum quarterly distribution of $0.2875 per unit for each whole quarter, or $1.15 per unit on an annualized basis, which equates to a 5.75% yield on an annualized basis at a unit price of $20.

The amount of distributable cash flow required to support the payment of the minimum quarterly distribution for four quarters is approximately $9 million (or an average of approximately $2.3 million per quarter). Pro forma distributable cash flow generated during the twelve months ended September 30, 2014, and the year ended December 31, 2013, was approximately $10.6 million and $9.1 million, respectively. As a result, there would have been sufficient distributable cash flow to pay the full minimum quarterly distributions in both periods.

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Portfolio Update

The Distribution Isn’t Sinking  

I have now listened to Navios Maritime Partners’ (NYSE: NMM) third-quarter conference call three times, which means I heard Chairman and CEO Angeliki Frangou assert at least nine times that the partnership’s 2015 dividend secure and that in fact the 39% of the capacity still available for next year can be rechartered without loss of cash flow at current market rates.

Perhaps Morgan Stanley analyst Fotis Giannakoulis only heard the message three times, including once in response to his own question. Perhaps he believes Frangou is lying, or deluded.

I have no other explanation for how one could listen to the same call (you can do it here) and come away convinced, as Giannakoulis sounded in downgrading NMM to Underweight with a $13 price target, that “NMM’s distribution capacity declines as current dividend far exceeds earnings, charters roll over at lower levels and coverage ratio is below 1x.”

It’s true that the formal distribution coverage for the quarter was at 0.73x, but on a pro-forma basis adjusting for the two container ships acquired during and immediately after the quarter and for leftover capital from February’s secondary offering that’s not yet been deployed, the coverage improves to 1x. And even without any pro-forma adjustments, distribution coverage over the last nine months stands at 1.21x, meaning Navious covered its payouts with 20% to spare.

Frangou said distribution coverage of 1.1x, based increasingly on long-term container charters rather than just the dry bulk carriers that used to account for all of NMM’s revenue, would be sufficient to consider a distribution hike.

Here’s a direct quote from her: “…Our open base [i.e., unbooked capacity — IG] for 2015 it is really at current market and we can easily charter out a vessel at that rate or above. So the distribution is really looking very nicely for the next two years.” It’s hard to understand how one gets from that  and the partnership’s health distribution coverage over the last nine months to claims the distribution is unsustainable.

Frangou isn’t some quack. She’s steered NMM through the collapse of global shipping rates with verve and skill over the last five years, buying a lot of extra time with a move into container shipping to wait out the slump and the related glut of merchant ships.

Surveying current rates on NMM ships coming off charter over the next year against the current spot market suggests that even if the cash flow gets dinged in the rechartering the ding should end up pretty modest, especially given the growing cushion of the longer-term container charters.

Moreover, NMM has retained the financial flexibility to continue adding container ships to meet its goal of ultimately getting as much as half its profits from that shipping sector, up from less than 30% currently.

The recent downgrades by Morgan Stanley and Stifel Nicolaus come after a sharp decline in the unit price (and similar moves in the share prices of other bulk shippers) on worries that China’s slowing growth will undermine its imports of iron ore and coal, along with the business prospects of dry bulk shippers.

I’d put more faith in Frangou, who sees continued strong long-term shipping demand, improving fleet fundamentals tied to rising scrappage of older vessels and a long-term advantage for NMM, which enjoys a lower cost of capital than many of its rivals and significantly lower operating costs well.

At a current yield of 13.1%, fairly secure through at least the end of next year, NMM trades like an inexpensive, income-producing option on a shipping recovery that may well materialize down the line. And even if it takes a while, consider that, beyond the busy rechartering stretch looming over the next 12 months, NMM currently has only a single charter expiring in 2016-17.

At worst, this is a generous yield that’s likely to continue delivering predictable income. But the current unit price is low that a decent rebound could turn a double-digit yield into an afterthought. Continue buying NMM below $17.70, the level at which the current distribution would deliver a yield of 10%, and a capital gain of 31% based on the current market price.

— Igor Greenwald