TJ Schultz is a Managing Director at RBC Capital Markets. Mr. Schultz joined RBC Capital Markets in 2008 and brings over 15 years of equity research and management consulting experience to the master limited partnership team, primarily focused on midstream energy partnerships. He was an Institutional Investor “Best Up and Comer” in 2012 and 2013 and appeared on the Institutional Investor All-America Research Team in 2017. Prior to joining RBC Capital Markets, Mr. Schultz worked for a Texas-based investment bank, focusing on yield-oriented investments across the energy and health care sectors.
Mr. Schultz sees a new era dawning for MLPs. “Some MLPs had matured to a stage that the incentive distribution rights, or IDRs, were becoming a drag. If a publicly traded C-Corp general partner had a mature MLP, one solution would be to buy out that MLP, effectively eliminating the IDRs and proceeding forward as a midstream corporation rather than a partnership. This had several impacts, but the primary goal was to eliminate the IDRs, convert to a more liquid C-Corp currency, and put the company on a more stable path forward with a better cost of capital.”
These MLP conversions and the self-funding model are good for investors. “Going forward, the space looks like a much safer and more investable asset class. You are seeing more interest by midstream entities to gravitate to a self-funding model. There is likely to be less focus on dividend and distribution growth and more focus on improving coverage of dividends to allow more internal funding of projects. It will not happen overnight, and if the equity markets are cooperative, there still should be financing opportunities available in the public markets for good projects. As long as this coincides with an improving fundamental backdrop and better fund flows into the space, we think the return profiles on projects can lead to better cash flow per unit and ultimately some valuation improvement through 2018.”
To get specific recommendations and details on the top picks from TJ Schultz of RBC Capital Markets read the entire interview in the Wall Street Transcript.