Jacksonville Police and Fire Pension Fund

Transcription

1 Jacksonville Police and Fire Pension Fund Midstream market update Jacksonville Police and Fire Pension Fund March 5, Tortoise

2 Organizational overview

3 Tortoise overview A recognized leader in essential assets and income investing, Tortoise is also a market pioneer in energy and infrastructure investing We offer publicly traded closed-end funds, open-end funds, private funds, exchange-traded products and separately managed accounts Approximately $18.3 billion in assets under management through its family of registered investment advisors Locations in Kansas City, Los Angeles, New York, London, Connecticut and Luxembourg Employees own approximately 33% of the management company As of 12/31/218 3

4 Tortoise approach Deeply committed to exceptional service Mindset that values relationships and a commitment to put clients first Foundation on which we build and maintain trust Motivated by thinking differently View that looks beyond the obvious and inspires pioneering investment solutions that have broadened and deepened our investor base Entrepreneurial approach that fosters curiosity, debate and teamwork Focused on the long term Disciplined and results-driven investment process Steadfast investment philosophy that endures across economic cycles Passionate about quality Focus on providing unmatched quality in every aspect of our business 4

5 Tortoise team Investments Distribution, service and marketing Operations Investment management Investment research Strategic investment group Client portfolio management Trading Strategic/product development Distribution Institutional Private client group Strategic client group International Client service Marketing Financial operations Tax/corporate accounting Compliance Information technology Business intelligence Firm support As of 12/31/ employees 39 CFA designations 5

6 Tortoise investment capabilities Capabilities Investments Vehicles Securities Equities Fixed income Derivatives Investments Public Private Strategies Active Passive Energy infrastructure Energy value chain MLPs Sustainable infrastructure Clean energy/renewables/ energy transition Water Social infrastructure Direct lending to public finance organizations Global infrastructure Utilities and broad infrastructure Credit Investment grade Leveraged finance Derivatives Covered calls Swaps Separately managed accounts Closed-end funds U.K. investment trust Open-end funds/ucits Interval fund Private funds Exchange-traded products As of 12/31/218 6

7 Account overview

8 Account portfolio vs. index We have consistently pursued a strategy focused on long-haul, fee-based, investment grade companies Jacksonville Police and Fire Pension Fund portfolio Midstream market Long-haul pipelines 76% Fee-based cash flows 89% Investment grade rating 93% Crude oil pipelines 16% Cash 2% Natural gas pipelines 37% Other 2% Marine transportation 2% Oil and gas production 2% Coal 1% Propane 2% Gathering and processing 14% Natural gas pipelines 39% Capitalization above $1 billion 1% Average annual turnover 2% - 25% Gathering and processing 22% Crude oil pipelines 15% Number of names 24 Refined product pipelines 23% Refined product pipelines 23% As of 1/31/219 Midstream market represented by the S&P MLP Index. Due to rounding, totals may not equal 1%. Please see important disclosures at end of presentation. 8

9 Account performance summary Month to date Fiscal year to date 1 1 year 3 year 5 year Since inception 2 Portfolio activity summary From 2/28/211 to 1/31/219 Account (gross of fees) (4.39) (4.38) 9.33 (.99) 6.49 Account (net of fees) (4.57) (5.15) 8.49 (1.75) 5.69 S&P MLP Index (6.99) (5.46) 9.54 (4.4) 2.9 Over/under performance (gross) Over/under performance (net) (.21) (1.5) Tortoise MLP Index 13.4 (5.55) (7.5) 9.43 (3.6) 2.67 Wells Fargo MLP Index 13.1 (6.94) (5.68) 9.63 (3.94) 2.52 Portfolio value on 2/28/211 $ - Contributions 52,5, Withdrawals (34,,) Realized gains/(losses) 8,96,53 Unrealized gains/(losses) (6,94,798) Interest 57,617 Dividends/distributions 2,171,44 Management fees paid from account - Expenses (12,241) Portfolio value on 1/31/219 $4,736,485 S&P 5 Index 8.1 (6.59) (2.31) All returns through 1/31/219. Annualized for periods over one year. 1 Fiscal year to date: 9/3/218 to 1/31/ Performance inception date: 3/31/211. It is not possible to invest directly in an index. Please see important disclosures at end of presentation. Past performance is no guarantee of future results. 9

10 Account portfolio Shares Unit Total Current Current Market Ticker Security held cost ($) cost ($) price ($) value ($) weight (%) Common stock Natural gas pipelines LNG Cheniere Energy Inc. 6, , , KMI Kinder Morgan Inc 23, , , OKE ONEOK, Inc 39, ,15, ,55, TGE Tallgrass Energy LP 6, ,347, ,449, $4,197,1.74 $4,84, % Gathering and processing AMGP Antero Midstream GP LP 12, , , ENLC Enlink Midstream, LLC 46, , , TRGP Targa Resources Corp. 23, ,28, , WMB Williams Companies, Inc 98, ,84, ,645, $5,59,247.4 $4,38, % Limited partnerships Crude oil pipelines ANDX Andeavor Logistics LP 39, ,974, ,4, BPMP BP Midstream Partners LP 22, , , PAA Plains All American Pipeline, L.P. 16, ,14, ,654, SHLX Shell Midstream Partners LP 6, ,586, ,223, $9,7,868.5 $6,636, % Natural gas pipelines ET Energy Transfer LP 275, ,3, ,58, EPD Enterprise Products Partners L.P. 145, ,129, ,24, EQM EQM Midstream Partners, LP 44, ,96, ,27, $11,336,544.2 $1,11, % Refined product pipelines BPL Buckeye Partners, L.P. 29, ,964, , MMP Magellan Midstream Partners, L.P. 55, ,71, ,413, MPLX MPLX LP 91, ,517, ,216, PSXP Phillips 66 Partners LP 39, ,215, ,955, $11,48,922.8 $9,499, % Gathering and processing AM Antero Midstream Partners LP 42, ,22, ,75, DCP DCP Midstream LP 5, , , NBLX Noble Midstream Partners LP 8, , ,4..7 WGP Western Gas Equity Partners, LP 13, , , WES Western Gas Partners LP 56, ,31, ,739, $5,215,994.8 $4,694, % Cash and Equivalents CASH Cash Account 252, , DIVACC Dividend Accrual 394, , $646, $646, % TOTAL PORTFOLIO $46,935,49.28 $4,736, % As of 1/31/219 1

11 Client service Weekly podcast Portfolio managers provide timely updates on trending topics in the market Monthly report Contains performance, transactions, sector allocations and holdings Quarterly letter One-page portfolio review of the sector market and strategy performance Quarterly webcast In-depth review of performance, attribution of performance and current market outlook with portfolio team Annual meeting In your office with members of the Tortoise team K-1 checklist Includes a list of K-1s to be received, expected release dates, end of year units and current year transactions Access to portfolio managers Deep and experienced investment team, consisting of seven portfolio managers, averaging 17 years of experience Symposium Educational sessions and keynote speakers, covering the spectrum of essential assets and income investing As of 1/31/219 11

12 Midstream market update The following data represents our estimates based on the financial statement of the companies in the midstream composite portfolio as of 1/4/219. Individual portfolios may vary. Past performance is no guarantee of future results.

13 This section contains certain statements that may include forward-looking statements. All statements, other than statements of historical fact, included herein are forward-looking statements. Although Tortoise believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Actual events could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors. You should not place undue reliance on these forward-looking statements. This section reflects our views and opinions as of the date herein, which are subject to change at any time based on market and other conditions. We disclaim any responsibility to update these views. These views should not be relied on as investment advice or an indication of trading intention. Discussion or analysis of any specific company-related news or investment sectors are meant primarily as a result of recent newsworthy events surrounding those companies or by way of providing updates on certain sectors of the market. Tortoise, through its family of registered investment advisors, does provide investment advice to Tortoise-related funds and others that includes investment into those sectors or companies discussed in this section. As a result, Tortoise does stand to beneficially profit from any rise in value from many of the companies mentioned herein, including companies within the investment sectors broadly discussed. 13

14 Themes/catalysts for 219 Structure Return of capital to shareholders Flows 14

15 Structure

16 Structure historical perspective Components of total return for an equity security: Dividend yield Earnings per share growth Change in market multiple Prolonged energy downturn and poor equity capital markets MLPs Return components Qualities Version 1. Distribution yield Distribution per unit growth Change in market multiple Distribution coverage 1.x - 1.3x Equity and debt markets fund projects Incentive distribution rights (IDRs) prevalent Shareholder return primarily through distribution Version 2. Distribution yield Distributable cash flow (DCF) per unit growth Change in market multiple Distribution coverage 1.2x - 1.5x Excess cash flow and debt markets fund projects No IDRs Shareholder return through distribution, debt reduction and unit repurchases MLP model migrating to version 2. 16

17 Structure simplifications After a busy 218, the transition to an IDR-free portfolio is almost complete 218: year of the transaction Percent of SMA portfolio without IDRs Expected in % % Announced in % e Source: company estimates and Tortoise as of 1/4/219 The projections on this page are based on industry estimates and are no guarantee of future outcomes. 17

18 Structure self-funding Self-funding prevalent across the sector Equity issued to public by midstream MLPs 3 25 $ in millions e 22e 221e Source: Bloomberg and Tortoise as of 1/4/219 The projections on this page are based on industry estimates and are no guarantee of future outcomes. 18

19 Return of capital

20 Return of capital Return of capital can take many forms: Dividends/distributions Stock buybacks Leverage reduction Must first highlight ability to generate cash to return to shareholders 2

21 Return of capital cash from operations Cash from operations displays solid growth GAAP cash from operations 55, 5, $ in millions 45, 4, 219e 22e 221e Source: company estimates and Tortoise as of 1/4/219 The projections on this page are based on industry estimates and are no guarantee of future outcomes. 21

22 Return of capital cash from investing Cash from investing declines in outer years GAAP cash from investing -1, $ in millions -2, -3, -4, -5, 219e 22e 221e Source: company estimates and Tortoise as of 1/4/219 The projections on this page are based on industry estimates and are no guarantee of future outcomes. 22

23 Return of capital free cash flow Net effect is substantial free cash flow generation Free cash flow 35, 3, 25, $ in millions 2, 15, 1, 5, 219e 22e 221e Source: company estimates and Tortoise as of 1/4/219 The projections on this page are based on industry estimates and are no guarantee of future outcomes. 23

24 Return of capital free cash flow yield Free cash flow yield compelling vs. other asset classes Free cash flow yield Percent of portfolio free cash flow positive in 22e Free cash flow negative 3% 6 % e 22e 221e Midstream Utilities five-year median REITs five-year median Equities five-year median Free cash flow positive 97% Source: Bloomberg, company estimates and Tortoise as of 1/4/219 Midstream = Tortoise Midstream MLP Composite. Utilities = S&P Utilities Select Sector Index. REITs = FTSE NAREIT All Equity REITs Index. Equities = S&P 5 Index. It is not possible to invest directly in an index. Please see important disclosures at end of presentation. The projections on this page are based on industry estimates and are no guarantee of future outcomes. 24

25 Return of capital free cash flow after dividends Utilization of traditional debt funding creates strong free cash flow after dividends Free cash flow to equity after dividends * 15, 1, $ in millions 5, -5, 219e 22e 221e % of portfolio free cash flow positive after dividends: 44% 65% 79% Source: company estimates and Tortoise as of 1/4/219. *Free cash flow to equity assumes 5% of capex is funded with debt. The projections on this page are based on industry estimates and are no guarantee of future outcomes. 25

26 Return of capital financial metrics Leverage moves lower and coverage moves higher in conjunction with increased cash from operations Leverage Coverage 3.9x 1.5x Debt to last 12 months EBITDA 3.8x 3.7x 3.6x 1.45x 1.4x 1.35x 3.5x 219e 22e 221e 1.3x 219e 22e 221e Source: company estimates and Tortoise as of 1/4/219 The projections on this page are based on industry estimates and are no guarantee of future outcomes. 26

27 Return of capital What does all that data tell us? Significant free cash flow generation Ability to return capital to shareholders High current cash yield Sequential growth in distributions Buybacks likely start in 219, potential to ramp in 22 and beyond as free cash flow to equity holders ramps Asset sales provide upside and have been prevalent of late 27

28 Return of capital distribution growth Portfolio distribution growth continues, while DCF/unit growth even higher, creating options for utilization of excess cash Sequential distribution growth Distribution growth vs. DCF/unit growth Indexed at 4Q % Q18 1Q19e 2Q19e 3Q19e 4Q19e 1Q2e 2Q2e 3Q2e 4Q2e 1Q21e 2Q21e 3Q21e 4Q21e 219e 22e 221e DCF/unit growth Distribution growth Source: company estimates and Tortoise as of 1/4/219 The projections on this page are based on industry estimates and are no guarantee of future outcomes. 28

29 Return of capital buybacks Buybacks move from thought to reality Percent of portfolio with ability to execute buybacks * 6 5 % of SMA portfolio e 22e 221e Source: company estimates and Tortoise as of 1/4/219. *Companies included with positive free cash flow after dividends and less than 4.x leverage. The projections on this page are based on industry estimates and are no guarantee of future outcomes. 29

30 Return of capital asset sales Higher multiple paid by P/E allows public midstream companies opportunity to take advantage of valuation arbitrage and provide incremental capital to reduce leverage or execute buybacks Public vs. private multiples Asset sales 14x 13.2x 1, Trailing 12-month EV/EBITDA multiple 12x 1x 8x 9.1x $ in millions 8, 6, 4, 2, 6x Private market multiple Public market multiple MLPs C-corps Source: company estimates, Tortoise and Wells Fargo as of 1/4/219 P/E = price to earnings. EV/EBITDA = enterprise value to earnings before interest, taxes, depreciation and amortization. 3

31 Return of capital asset sales Projection of historical asset sales in future periods adds incremental cash flow to estimates Free cash flow upside with asset sales Free cash flow yield upside with asset sales 4, 12 35, $ in millions 3, 25, 2, 15, % , 5, e 22e 221e Source: Bloomberg, company estimates, Tortoise and Wells Fargo as of 1/4/219 The projections on this page are based on industry estimates and are no guarantee of future outcomes. 219e 22e 221e Stand-alone free cash flow Free cash flow upside with asset sales Stand-alone free cash flow yield Free cash flow yield upside with asset sales 31

32 Return of capital thought experiment Substantial cash generation over time allows for significant return of capital in no capex scenario Return of capital potential 6 6 Cumulative allocation of cash flow ($ in billions) Market cap ($ in billions) 221e 222e 223e 224e 225e 226e 227e 228e 229e 23e 231e Maintenance capex Distributions Debt paydown Share buyback Float-adjusted market cap Source: company estimates and Tortoise as of 1/4/219 The projections on this page are based on industry estimates and are no guarantee of future outcomes. 32

33 Flows

34 Flows what we are seeing New capital is entering the space: New closed-end fund launch in the market currently New entrants, such as insurance companies Several institutional searches underway P/E entering sector via asset acquisitions In addition to what we are seeing, Tortoise is highly engaged: Held meetings with all portfolio management teams, stressing simplification of structure, capital allocation, returning capital to shareholders, and reduction of industry jargon and focus on GAAP financials 34

35 Summary We see key catalysts for space materializing in 219 Structure Simplifications almost complete Companies self-funding equity portion of capex program Return of capital to shareholders High current cash yield Sequential cash distribution growth Selling non-core assets Stock buybacks with excess cash flow Flows New capital entering space from a variety of channels 35

36 Five year outlook

37 Energy value chain in perspective Midstream Upstream Downstream Crude oil NGL products Refined product Refinery NGL products NGL OIL FIELD Fractionator Petrochemical plant Liquid-rich gas Dry gas Gas processing facility Gas storage facility Dry gas Power plant GAS FIELD Source: Tortoise 37

38 Disruptive technology driving shale growth Use of technology in the oil and gas sector has reversed a decade-long decline in domestic production Growing North American production is driven by two processes used safely for many years Hydraulic fracturing Horizontal drilling New technological advancements are increasing recoveries while lowering costs 3D reservoir modeling Geosteering Source: Laredo Petroleum, Inc. and Society of Exploration Geophysicists as of 5/31/217 38

39 Major unconventional basins benefiting from technology 25 unconventional basins 218 unconventional basins Montney Oil Sands Bakken Antrim Monterey Mancos Collingwood Marcellus Niobrara Utica Mississippi Lime Granite Huron Woodford Fayetteville Wash Barnett Haynesville Floyd Permian Tuscaloosa Oil and gas basins Prospective shale development Eagle Ford Source: Tortoise 39

40 Technology and efficiency have increased production U.S. oil production has grown with fewer rigs Oil rig efficiency has increased since 28 14, 1,8 75 U.S. oil production (thousand barrels per day) 12, 1, 8, 6, 4, 2, 1,5 1, Oil production per rig month (barrels per day) U.S. dry gas production has grown with fewer rigs Gas rig efficiency has increased since , ,4 1,2 1, Gas production per rig month (million cubic feet per day) Baker Hughes oil rig count U.S. oil production Oil rig count Source: Baker Hughes and Bloomberg as of 12/31/218 Source: EIA as of 12/31/218 U.S. dry gas production (billion cubic feet per day) Baker Hughes gas rig count U.S. dry gas production Gas rig count Source: Baker Hughes and Bloomberg as of 1/31/218 Source: EIA as of 12/31/218 4

41 U.S. production outlook Production growth expected to continue at a strong pace for the next five years Crude oil Natural gas 15 9 Natural gas liquids (NGLs) 7 6 Million barrels per day Billion cubic feet per day Million barrels per day e 219e 22e 221e 222e 223e e 22e 221e 222e 223e e 22e 221e 222e 223e EIA historical Forecast EIA historical Forecast EIA historical Forecast Low cost, most complex refineries in the world provide competitive advantage In response to growing low-cost feedstock, refinery capacity increased.8 MMb/d for year ending Significant international demand for U.S. light, sweet crude oil Power plants switching from coal to natural gas to reduce carbon footprints Industrial activity, where natural gas is a key input Growing exports of natural gas to Mexico and LNG to rest of world Petrochemical companies investing $186B domestically to take advantage of low-cost feedstock 2 Exports of ethane, propane, butanes and natural gasoline are growing to rest of world due to competitive cost Source: 1 EIA STEO (January 219). 2 The Wall Street Journal as of 6/25/217. Tortoise estimates based on EIA, EPD, IHS, Tudor Pickering Holt and Wood Mackenzie as of 12/31/218. The projections on this page are based on industry estimates and are no guarantee of future outcomes. 41

42 U.S. transition to a global exporter Thousand barrels per day Liquefied petroleum gas exports have increased 1,5 1, % YTD Thousand barrels per day Refined products: shifted from importer to exporter +2% YTD 2,4 1, , Natural gas exports have grown Crude oil exports extended to rest of world Million cubic feet per day 12, 1, 8, 6, 4, 2, +13% YTD Thousand barrels per day 2,5 2, 1,5 1, 5 +75% YTD Pipeline exports LNG exports Canada Rest of world Source: EIA (January 219) as of 1/15/218 42

43 Infrastructure growth initiatives 218e - 22e Approximately $139 billion in pipeline and related projects Highlighted flows Crude oil Gas Natural gas liquids Canada $33.7 billion Bakken $2.4 billion Rockies/Niobrara $1.5 billion Mid-Continent $13.2 billion Marcellus/Utica $26.4 billion Permian/Eagle Ford $16.9 billion Gulf Region $15.1 billion Source: company filings and Tortoise estimates as of 12/31/218 Note: Total capital investment also includes miscellaneous other projects totaling approximately $3 billion. The projections on this page are based on industry estimates and are no guarantee of future outcomes. 43

44 Separate account key contacts Client Service Reporting General questions Billing (advisory fee) K-1 checklist General tax questions Jenny Park Director Client Relations (913) Tamara Boykin Senior Client Relations Associate (913) Ben Price Senior Client Relations Associate (913) Jake Robertson Senior Client Relations Associate (913) Leslie Lamoreaux Client Relations Associate (913) Operations Custodial account data feed setup Trade settlement issues Investment accounting and reconciliation Raven Olivarez-Weber Director and Operations Manager (913) Kelly Schuetz Senior Operations Specialist (913) Kevin Morin Senior Operations Analyst (913)

45 Important disclosures This presentation contains certain forward-looking statements. These forward-looking statements include all statements regarding the intent, belief or current expectations regarding matters covered and all statements which are not statements of historical fact. The forward-looking statements involve known and unknown risk, uncertainties, contingencies and other factors, many of which are beyond our control. Since these factors can cause results, performance and achievements to differ materially from those discussed in the presentation, you are cautioned not to place undue reliance on the forward-looking statements. This presentation is updated through January 31, 219 unless otherwise noted. Master limited partnerships (MLPs) are subject to many risks, including those that differ from the risks involved in an investment in the common stock of a corporation. Holders of MLP units have limited control and voting rights on matters affecting the partnership. Holders of units issued by an MLP are exposed to a remote possibility of liability for all of the obligations of that MLP in the event that a court determines that the rights of the holders of MLP units to vote to remove or replace the general partner of that MLP, to approve amendments to that MLP's partnership agreement, or to take other action under the partnership agreement of that MLP would constitute "control" of the business of that MLP, or a court or governmental agency determines that the MLP is conducting business in a state without complying with the partnership statute of that state. Holders of MLP units are also exposed to the risk that they will be required to repay amounts to the MLP that are wrongfully distributed to them. In addition, the value of the investment in an MLP will depend largely on the MLP's treatment as a partnership for U.S. federal income tax purposes. If an MLP does not meet current legal requirements to maintain partnership status, or if it is unable to do so because of tax law changes, it would be treated as a corporation for U.S. federal income tax purposes. In that case, the MLP would be obligated to pay income tax at the entity level and distributions received generally would be taxed as dividend income. Furthermore, MLP interests may not be as liquid as other more commonly traded equity securities. Index information: The S&P MLP Index is designed to provide investors with exposure to the leading partnerships that trade on the NYSE and NASDAQ. The index includes both MLPs and publicly traded LLCs, which have a similar structure to MLPs and share the same tax benefits. The Tortoise MLP Index is a float-adjusted, capitalization-weighted index of energy MLPs. To be eligible for inclusion in the Tortoise MLP Index, a company must be publicly traded, organized as a limited partnership or a limited liability company (LLC), and be classified as an energy MLP by the Master Limited Partnership Association (MLPA). Tortoise MLP Index (the Index ) is the exclusive property of Tortoise Index Solutions, LLC, which has contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC) to calculate and maintain the Index. The Index is not sponsored by S&P Dow Jones Indices or its affiliates or its third party licensors (collectively, S&P Dow Jones Indices ). S&P Dow Jones Indices will not be liable for any errors or omission in calculating the Index. Calculated by S&P Dow Jones Indices and its related stylized mark(s) are service marks of S&P Dow Jones Indices and have been licensed for use by Tortoise Index Solutions, LLC and its affiliates. S&P is a registered trademark of Standard & Poor s Financial Services LLC ( SPFS ), and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ( Dow Jones ). The Wells Fargo MLP Index (formerly Wachovia MLP Index) is a float-adjusted, capitalization-weighted index of energy MLPs with a market capitalization of at least $2 million at the time of inclusion. Equities = S&P 5 Index, an unmanaged market-value weighted index of stocks, which is widely regarded as the standard for measuring large-cap U.S. stock market performance. Utilities = S&P Utilities Select Sector Index, a modified market-cap weighted index composed of constituents of the S&P 5 in the utility sector (as defined by the Global Industry Classification Standard). REITs = FTSE NAREIT All Equity REITs Index, a free-float adjusted, market capitalization-weighted index of U.S. equity REITs. Constituents of the index include all tax-qualified REITs with more than 5% of total assets in qualifying real estate assets other than mortgages secured by real property. It is not possible to invest directly in an index. Index returns and yields shown are presented before management fees and other expenses of Tortoise advisory products and services. Clients or investors in Tortoise products and services will experience returns and yields reduced by advisory fees and other product expenses. Past performance is no guarantee of future results. 45

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