High Yield Report

Special Report:
Bull Market’s 2011 High Yield Stock Report

A Special Report for Bull Market Report Subscribers

Published by the Bull Market Report
November 2010
“Bull Market High Yield Stock Report”
Bull Market’s 2011 High Yield Stock Report
2010 Review
Before we start with the picks for the 2011 High Yield Special Report, we wanted to
review last year's picks.
Name (ticker) Opening Closing Dividends 1-year Total

Price Price Paid Return*
12/04/09 11/23/10
TICC (TICC) $5.80 $10.65 $0.72 96.0%
StoneMor $18.00 $28.93 $2.23 73.1%

(STON)
Pioneer $20.14 $28.29 $2.00 50.4%

Southwest (PSE)
B&G Foods $8.51 $12.53 $0.51 53.2%

(BGS)
Enterprise $29.73 $43.02 $2.286 52.4%

Products
Partners (EPD)
NuStar Energy $51.95 $67.34 $4.27 37.8%

(NS)
Philip Morris $49.82 $58.77 $2.38 22.7%

International
(PM)
Microchip $27.77 $33.76 $1.37 26.5%

(MCHP)
Valley National $12.52* $12.79 $0.541 6.5%

(VLY)
Verizon (VZ) $32.70 $32.39 $4.08** 11.5%
Average 43.0%
th
*Reflects post-split price (pre-split $13.15). Valley split 21:20 on May 5 .
**Includes cash value of 0.24 shares of Frontier via spin-off plus $1.913 in dividends.

© 2010 Bull Market Report. All rights reserved. Unauthorized reproduction is strictly prohibited.
Please see the important disclosures at the end of this report.

Looking at the above chart, our ten picks for 2010 performed extremely well, returning
an average of 43.0%. We were able to find a number of undervalued winners across
various sectors. Here are our current thoughts on each pick:
TICC (TICC): Our best-performing pick for 2010, BDC (business development corp.)
TICC was trading well below book value, had decent credit quality metrics, and carried
no leverage when our report came out. That alone was a recipe for strong returns in
2010, but as the economy began recovering, the firm began gaining earnings
momentum, helped by its decision to invest in beaten-down collateralized loan
obligation (CLO) investments. It is its CLO investments, and their lack of transparency,
however, along with the stock now trading at a more normal above book value multiple
that has raised the stock's risk profile. As such, we view TICC as a "Hold" for more
aggressive investors at this point.
StoneMor (STON): A high-yielding MLP with a simple business model and secure
distribution, StoneMor was attractively priced when we chose it as one of our 2010 high-
yield picks because its complicated accounting made it difficult for investors to
understand. The stock more than lived up to our expectations in 2010, though, and we'd
be sellers as the yield premium it typically trades at compared to other MLPs (because
its dividend is not as shielded from taxes as most MLPs) has shrunk.
Pioneer Southwest (PSE): An underleveraged energy MLP with a strong hedge book,
we believed Pioneer Southwest would use its strong balance sheet to lever up and
make accretive acquisitions. That never happened, although results have been solid.
Property acquisitions are still a potential catalyst and the dividend remains secure,
making the stock a "Hold." However, we're disappointed that Pioneer sat on the
sidelines while rival Linn was scooping up properties.
B&G Foods (BGS): An improved debt situation following a secondary offering led us to
B&G last year, and together with solid operational results helped send the stock higher.
Given the solid performance by the stock, we'd skim some profits given that comps will
start to get more difficult next year.
Enterprise Products Partners (EPD): A holdover from our 2009 high-yield report,
longtime favorite Enterprise didn't disappoint either year. Valuation keeps the stock off
the list for 2011, but it remains a core income-oriented holding and one of the best-run
MLPs around.
NuStar Energy (NS): NuStar had a strong year, as its core storage and transportation
business performed well, while its asphalt business had a strong Q3 to make up for a bit
weaker-than-expected Q2. Growth projects coming online should drive results in 2011;
however, NuStar Holdings (NSH) is probably the better way to play the NuStar story.
Philip Morris International (PM): Philip Morris turned in a strong year despite some
industry volume slippage, as it gained market share and increased prices. Meanwhile,


the company continues to create investor value through buying back shares and raising
its dividend. We continue to think the stock is still a "Buy."
Microchip (MCHP): Riding a wave of improved industrial production, Microchip has
consistently delivered strong results throughout 2010. With a strong balance sheet,
market-leading position, and solid growth prospects, we think the stock has more upside
from here. We'd accumulate shares on any weakness.
Valley National (VLY): After a strong start, Valley shares topped out in late April, early
May and have floundered ever since. Earnings and credit quality have been steady,
while the over 5% yield offers a nice cushion. We think this conservative bank with great
credit quality can be accumulated at current levels.
Verizon (VZ): We picked Verizon hoping to ride a potential iPhone catalyst to gains,
and it looks like the wireless company will finally get the Apple (AAPL) smartphone
next year. That has helped the stock have a good run since July after lagging the first
half of the year. We'd take profits and move to other ideas.
2011 Prologue:
Our first two annual high-yield special reports managed to produce some outstanding
returns, with 2009's report generating a 1-year return of 75.1% and 2010's report
producing a 43.0% return.
Last year in our prologue we wrote that picking stocks for our 2010 High-Yield Special
Report proved to be much more challenging compared to 2009 and that valuations and
yields weren't as attractive. Well, that holds even truer heading into 2011.
One fear we had heading into last year was that with short-term interest rates near zero,
eventually they only had one place to go and that was up. Well, as it turned out, the Fed
held rates steady, and now is even artificially pushing them down more through
quantitative easing. Nonetheless, at some point rates do have to go up, and every day
we move closer to that day.
Historically, traditional high-yield groups perform well in flat or falling interest rate
environments, and lag in a rising interest rate environment. The reason is that yield
instruments, whether bonds or high-yielding stocks, are often priced in comparison to
Treasuries with a risk spread attached. If Treasury prices start to rise, either a stock's
risk spread needs to shrink, the company needs to increase its dividend in order for its
yield to rise, or the stock price needs to fall in order to keep the same balance. While
risk spreads had been elevated, by and large they have returned to more normal levels
for most groups.
Against this backdrop, we were largely looking for stocks that had elevated risk spreads
compared to their peers (ETP, MPW, NKA, TGP, EXLP) that we thought could shrink or
stocks that looked undervalued (AEC, SB, PNNT) compared to their peers.


2011 Picks (in alphabetical order):
Associated Estates Realty (AEC)
Energy Transfer Partners (ETP)
Exterann Partners (EXLP)
Fly Lease International (FLY)
Medical Property Trusts (MPW)
PennantPark Investments (PNNT)
Philip Morris International (PM)
Niska Gas Storage (NKA)
Teekay LNG (TGP)
Safe Bulkers (SB)



Associated Estates Realty
Ticker Symbol: AEC
Yield: 4.7% at $14.50 (close on November 23rd)
Dividends:
Year Paid: 2010 2009 2008 2007 2006
Dividend: $0.68 $0.68 $0.68 $0.68 $0.68
Structure: Real Estate Investment Trust

Market Cap: $607 million
Website: http://www.associatedestates.com
Business Description: Associated Estates is a REIT engaged in the ownership and
operation of multifamily residential units. It also provides asset and property
management services to third-party owners of those types of properties. Associated
Estates' portfolio consists of 52 properties containing 13,456 units located in nine states.
During the year ended December 31st, 2009, the company's multifamily properties
provided approximately 98.1% of its consolidated revenue.
Strengths:
Consistent dividend payments.

Trades at a deep discount to its net asset value (NAV), estimated at between
$16.00-$17.00.
Completed three equity offerings in the past year that raised $289 million that
was used to cut debt and strengthen the balance sheet.
Solid acquisition activity that has helped to reposition the portfolio in
economically stronger parts of the country.
Recently upgraded its line of credit to $250 million from $150 million, with a
three-year term priced at LIBOR plus a spread of 230 basis points.
An improved debt situation could lead to accretive acquisitions.
Little new supply, a gradually improving economy, and uncertain housing market
should see apartment pricing power start to improve.


Weaknesses:
Still has a significant concentration in the Midwest, which has been particularly
hurt by job losses.
A prolonged downturn could lead to reduced rental income as more units go
unoccupied.
No dividend increase over the last five years.
Most-Recent Earnings: Funds from operations (FFO) climbed to $7.8 million, or 24

cents a share, in Q3 compared with FFO of $4.3 million, or 26 cents a share, in the
prior-year period. The lower per share figure reflects a near doubling of the company's
share base in the last year. The results topped the 23 cents a share analyst estimate
for FFO.
FFO is the key metric in evaluating the operational health of a REIT. It adds non-cash
factors like depreciation and amortization to net income.
Total revenue increased to $40.3 million from about $32.9 million a year earlier, which
was well above the $34.9 million consensus estimate. AEC said its apartment
occupancy rate rose to 96.0% from 94.6% a year earlier.
Same-apartment rents grew to $866 from $858 in the prior-year period.
Looking forward, the REIT lowered its FFO guidance to a range of 85-87 cents from 87-
93 cents due to a recent equity issuance.
Other Recent News: Standard & Poor's raised its credit rating on the company to BB
from BB- in November, citing its improved cash flow and credit risk profile following its
successful equity offering and efforts to pay down debt. The company sold 8 million
shares at $13.60 per share in September, generating net proceeds of $119.6 million.
Top-5 Shareholders:
# Insider Value($M) % Outstanding

1 Cohen & Steers $62.0 13.8%
2 FMR Corp $26.1 5.8%
3 JP Morgan Chase $23.4 5.2%
4 ING Clarion $21.7 4.8%
5 Adelante Capital $19.4 4.3%


Thomson/First Call Analyst Ratings:
Strong Buy 4
Buy 1
Hold 3
Underperform 0
Sell 0
Analyst Quote: "We believe AEC represents the best value play in the Apartment REIT
universe given the stock's deep valuation discount to the sector average on both a
P/FFO and NAV basis. We expect earnings growth at AEC, driven by accretive
acquisitions, to outpace the sector average over the next 2-3 years." – Omotayo
Okusanya, Jefferies & Co.
BMR Take: What attracted us to AEC was the deep discount to NAV it has traded at,
despite the company's management doing a good job of riding out the recession.
With an improved balance sheet and ample liquidity, the company is in a good position
to continue to acquire apartment properties outside of the Midwest in faster-growing
regions, which should both help diversify its property holdings and spur growth. Given
what happened to homeowners, apartment living has become more appealing to many
people, allowing the apartment space to have both growth and defensive attributes
moving forward. If all goes accordingly, we would expect AEC to outperform its peers as
its NAV discount begins to shrink.
Energy Transfer Partners
Ticker Symbol: ETP

Dividends:
Year Paid: 2010 2009 2008 2007 2006
Dividend: $3.576 $3.576 $3.782 $3.188 $2.558
Structure: Master Limited Partnership

Market Cap: $9.8 billion
Website: http://www.energytransfer.com


Business Description: Energy Transfer Partners owns the largest intrastate pipeline
system in Texas and also owns pipelines in Arizona, Colorado, Louisiana, New
Mexico, and Utah. It owns and operates 17,500 miles of pipelines; three natural gas
storage facilities; and is also one of the three largest retail marketers of propane in the
United States, serving 1.2 million customers across the country.
Since 2008 it has completed 600 miles of large-diameter pipeline projects with an
aggregate capacity of more than 6.45 Bcf/d. It has a 50% interest in the Mid-
Continent Express Pipeline built and operated by Kinder Morgan.
In 2009, 56% of its operating income came from its fee-based intrastate natural gas
pipeline segment (largely Texas and Louisiana) and storage; 12% came from its
interstate pipeline segment; 12% came from its gas gathering and processing
midstream segment; and 20% came from its propane operations.
Strengths:
Operates very fixed-cost businesses with few variable costs that offer visible
revenue and cash flow streams. About 80% of its businesses are fee-based.
With its $2.0 billion Tiger and Fayetteville Express (FEP) projects expected to
come online by year-end, the company should see a return to distribution growth
in 2011.
With a major footprint in Texas, the company has opportunities for further growth
projects near important shale plays like Eagle Ford.
Trades at one of the higher yields among similar MLPs.
Has solid GP (general partner) and liquidity position.
Weaknesses:
Its propane business (about 20% total) is relatively slow growing and adds
seasonality.
The MLP hasn't grown its distribution in 10 quarters.
While Energy Transfer hedges most of its commodity price exposure, it does
have some exposure to commodity prices.
Rising funding costs could make future growth projects less desirable.
As an MLP, "cash" distributions from all MLPs over $1,000 in non-taxable
accounts, such as an IRA, are considered unrelated business taxable income
(UBTI) and could create a tax liability.
Most-Recent Earnings: Energy Transfer reported that Q3 adjusted EBITDA totaled

$280.5 million, a -1.5% decrease compared to a year ago. Net income available to
limited partners for the period totaled $10.3 million, or 5 cents per unit, compared to a
loss of -$16.5 million, or -10 cents per unit, in the year-ago period.


Distributable cash flow rose 10% to $160.5 million. Its coverage ratio was 0.94x through
the first nine months of the year. Q1 and Q4 are seasonally strong quarters due to
Energy Transfer's propane business.
Q1 revenues rose to $1.29 billion from $1.13 billion in the prior-year period as the
company's intrastate pipelines in Texas carried about 20% more natural gas.
Other Recent News: Energy Transfer announced its Tiger and Fayetteville Express
(FEP) projects would cost $2.02 billion, $480 million under its initial cost estimates.
Top-5 Shareholders:

Energy Transfer
1 $2,173.8 22.1%
Equity
2 Macquarie Fund $129.2 1.3%
3 Morgan Stanley $90.1 1.0%
4 Glickenhaus $49.6 0.5%
5 Wells Fargo $17.9 0.2%
Strong Buy 4
Buy 4
Hold 8
Underperform 0
Sell 0
Analyst Quote: "Positioning for LT Growth, Thematic Change in Cash Flows. With a
flexible balance sheet, ~$2 billion of liquidity, and strategically positioned assets (i.e.,
close proximity to several prolific gas production basins), Energy Transfer remains
optimally positioned to pursue both organic and in-organic growth initiatives.
Thematically, the partnership expects its interstate segment to contribute an increasing
portion of its overall EBITDA with the completion of its Tiger and FEP projects (~29%
pro forma vs. ~16% in 2009). Additionally, the ability to leverage intrastate connectivity
with a growing footprint intoliquids rich shale plays such as the Eagle Ford, Granite
Wash, etc. holds promise, as the initiative to become more vertically integrated across
the NGL value chain materializes.”– Raymond James.
BMR Take: Energy Transfer is a solid large-cap MLP that derives approximately 80% of
its operating income from fee-based businesses. The propane portion of its business
adds some seasonality, and its coverage ratio has also been a little thin the past two


years, although its target is only 1.05x. However, with its two big growth projects (Tiger
and Fayetteville Express) coming online in December, the company should begin to
grow its DCF and distribution in 2011, with it accelerating even more in 2012. With a
yield higher than rivals Enterprise (EPD) or Kinder Morgan (KMP), we think Energy
Transfer should trade higher now that these two projects are complete and its yield gap
starts to narrow some.
Exterran Partners
Ticker Symbol: EXLP

Dividends:
Year Paid: 2010 2009 2008 2007 2006
Dividend: $1.857 $1.852 $1.738 $1.378 N/A
Structure: Master Limited Partnership (MLP)

Website: http://www.exterran.com
Business Description: The company provides gas compression services and is tightly
connected to its parent, Exterran Holdings (EXH), which plans to use its MLP offspring
as a drop-down vehicle for assets. The company offers contract operation and
compression services to the oil and gas industry.
Natural gas compression is a mechanical process whereby the pressure of a volume of
natural gas is increased to facilitate transportation from one point to another. It is
essential to the production and transportation of natural gas. It is especially useful in
boosting the output from aging natural gas wells.
Exterran charges a fixed monthly fee for its contract operations services that its
customers are generally required to pay, regardless of the volume of natural gas it
compresses in a month. Contracts are based on a site-by-site basis. At the end of an
initial minimum term, which is typically between six and twelve months, contract
operations services generally continue until terminated by either party with 30 days
advanced notice.


Strengths:
Consistent and rising dividend payments.

Operates onsite-based, fixed-fee contracts that must be paid regardless of the
volume of compression services the client actually uses.
Exterran, along with its parent, are the leading compression services providers in
the U.S. with roughly a 50% market share.
Shale gas plays require compression services earlier than conventional plays,
which is a positive since most new drilling is in shale plays. Meanwhile,
compression has become popular for boosting production levels of aging
conventional gas plays.
Exterran Holdings typically drops a fresh asset into the MLP annually, which
helps to boost cash flow and distributions.
Weaknesses:
Roughly 65% of the company's business is done through distributors, with two
distributors accounting for 21% of sales. Loss of a contract with either or both
would significantly crimp revenues.
The company generally doesn't sign its customers to long-term deals, so there is
always a risk it could lose business to a competitor.
Needs a good natural gas production environment to perform well.
Most-Recent Earnings:
The partnership's adjusted EBITDA totaled $28.0 million for the third quarter 2010,
compared to $22.9 million in 2Q 2010 and $18.4 million a year ago. Distributable cash
flow (DCF) totaled $19.3 million in Q3, up from $12.8 million sequentially and $10.6
million in Q3 2009.
DCF and the MLP's credit profile were enhanced by the acquisition of assets from the
parent in August representing approximately 255,000 horsepower of compression
capacity. Exterran Partners increased operating horsepower during the quarter as a
result of improved customer activity.
Q3 revenue totaled $62.7 million, compared to $53.8 million in the previous quarter and
$41.3 million a year ago. Net income was $0.1 million in Q3, or a loss of -1 cent per
limited partner unit, compared to a net loss of -$1.3 million, or -7 cents per limited
partner unit, in 2Q and a profit of $2.0 million, or 9 cents per unit last year.


The DCF coverage ratio was a robust 1.23x, up from 1.1x in Q2 and 1.15x in the year-
earlier period.
Other Recent News: None
Top-5 Shareholders:

1 Kayne Anderson $13.2 13.2%
Royce & $11.0 2.8%

2 Associates
3 US Bancorp $7.3 1.8%
Fiduciary Asset Mgt $4.9 1.2%

4
5 Morgan Stanley $4.1 1.0%
Strong Buy 3
Buy 2
Hold 1
Underperform 0
Sell 0
Analyst Quote: "Gas production from unconventional plays continues to constitute a

growing percentage of the total gas produced in the U.S., now estimated to be around
40%. These plays, particularly the shales, have a steeper decline rate than conventional
wells and require compression services earlier in a formation's life cycle. As
unconventional plays continue to be the hot topic of the oil and gas patch, we estimate
that the need for compression will follow the production trend line for the next few
years." - J. Marshall Adkins, Raymond James.
BMR Take: We like Exterran's fee-based revenue stream and the commitment of parent
Exterran Inc. to drop assets into it on an annual basis for the foreseeable future. It
remains a solid play on natural gas production and particularly emerging shale plays,
but while it has no commodity exposure, it needs a strong production environment given
its short-term contracts. The company has managed to keep a robust coverage ratio
despite a relatively difficult period for natural gas, and has a very attractive yield, which
we think should compress, increasing the stock price and leading to solid gains.


Fly Leasing Limited

Ticker Symbol: FLY
Dividends:
Year Paid: 2010 2009 2008 2007 2006
Dividend: $0.80 $0.80 $2.00 N/A N/A
Structure: Limited Company

Website: http://www.flyleasing.com
Business Description: Formerly Babcock & Brown Air Limited (it changed its name in
June), Fly Leasing is an aircraft lessor that purchases and leases fuel-efficient
commercial jets under long-term contracts. The company currently has a fleet of 59
aircraft that it leases under multi-year operating leases to 33 airlines in 21 countries. It
has an average of 4.4 years remaining on its lease terms, although they are spread out
with several set to expire each year over the next several years. The weighted average
age of its fleet is 8.1 years. About 85% of it planes are narrow-body aircraft.
The company has a long-term servicing and management agreement with BBAM
(Babcock & Brown Aircraft Management.) On April 29th, 2010, Fly Leasing invested
$8.75 million to acquire an interest in BBAM LP, the newly formed private company that
on the same date acquired substantially all the aviation assets of Babcock & Brown.
Simultaneously, BBAM assumed the management agreement relating to B&B Air’s
portfolio, and the BBAM management team acquired one million B&B Air (now Fly
Leasing) shares from Babcock & Brown.
Strengths:
Has a smart, shareholder friendly management team that uses its capital well,
highlighted by buying back some of its debt at deep discounts, and later buying
back its stock at attractive prices.
Has a very well covered dividend with only about 20% of available cash going
towards its payment.


Has a geographically diverse customer base, with no customers representing

more than 10% of revenue.
Has a young fleet consisting largely of popular fuel-efficient narrow-body planes
that are in high demand.
Still trades at a relative large discount to net asset value (NAV).
The airline industry is showing solid signs of improvement.
Nice cash cushion of $361 million, including restricted cash.
Weaknesses:
Relatively high debt load, including a $578 million term loan with balloon
maturities starting in 2012 and $658.7 million left on its securitization loan,
although interest rates on both the loans have been hedged.
The airline industry is difficult, and it's not uncommon for carriers (which are Fly's
customers) to go bankrupt.
Needs to re-lease several planes each year.
Most-Recent Earnings: Fly Leasing reported net income of $12.2 million, or 45 cents
per share, for the third quarter, compared with $14.4 million, or 48 cents per share, in
the year-ago period. Excluding the impact of share-based compensation and other non-
cash items, its adjusted net income was $14.1 million, or 52 cents per share.
Operating lease revenue in Q3 was $51.7 million compared to $54.3 million last year, a
decrease of -5%. The drop was primarily due to the three aircraft that were off-lease,
one lessee being placed on a non-accrual basis and the loss of revenues from a lease
with Mexicana Airlines, which is in bankruptcy. Total revenues for the third quarter of
2010 were $62.6 million compared to $67.8 million in the same period of the previous
year.
Fly's management said it has since placed several aircraft that were off-lease during the
quarter and it expects its fleet to be fully leased or committed to airlines by the end of
the year.
The company generated available cash flow (ACF) of $40.4 million, or $1.48 per share,
compared to $29.1 million, or 96 cents per share, last year for an increase of 39%. Fly
defines ACF as net income plus depreciation, lease incentive amortization, amortization
of debt issue costs, non-cash equity based compensation, the deferred tax provision
and other one-time, non-cash items.
The company repurchased approximately 1.6 million of its shares during the quarter at
an average price of $10.70 per share.


Other Recent News: The company sold three older aircraft for prices above net book
value, netting $32.5 million in cash after the repayment of debt tied to those planes.
Cash on hand stood at $360.9 million at quarter end. On September 30th it announced
the acquisition of three new B737-800s in a sale and leaseback transaction with
flydubai. It subsequently sold one of those positions for a gain in October.
Top-5 Shareholders:

Neuberger
1 $25.9 7.4%
Berman
2 Ameriprise $9.0 2.6%
3 O'shaughnessy $1.7 0.5%
Eveans Bash
4 $1.0 0.3%
Magrino & Klein
Putnam
5 $0.8 0.2%
Investment
Strong Buy 1
Buy 0
Hold 1
Underperform 0
Analyst Quote: "We are initiating coverage on the common shares of FLY Leasing with
a Buy rating. We are using net asset value, which we derive by taking the market value
of the company's fleet and subtracting net debt. We estimate net asset value of the fleet
to be $16.50 per share. The company is cash flow positive, generating about $10 million
per month in free cash, $120 million per year, or $4.15 per share. At 4x cash flow, this
would value the company at $16.60 per share, which is above the current stock price
and consistent with net asset value. FLY is a pure play on aircraft leasing, engaging
only in sale/leaseback transactions with existing or with new customers, but not ordering
aircraft directly from the manufacturers for its own account." – Helane Becker, Dahlman
Rose
BMR Take: Trading at a nice discount to its net asset value, Fly looks like a good way
to continue playing a recovery in the airline industry. Fly's management team has been
nothing short of stellar, buying back some of its debt at huge discounts (which has now
greatly recovered in price), buying its shares back at attractive valuations, and even


generating profits by flipping planes before even taking delivery. While not without its
risks, we think the stock should trade closer to its NAV given managements' strong
record over the past few years.
Medical Property Trusts
Ticker Symbol: MPW

Dividends:
Year Paid: 2010 2009 2008 2007 2006
Dividend: $0.80 $0.80 $1.01 $1.08 $0.99
Structure: Real Estate Investment Truest

Website: http://www.medicalpropertiestrust.com
Business Description: Medical Properties Trust ("MPT") is a healthcare REIT that
invests solely in acute-care, community, and rehabilitation hospitals. It also provides
operators of those facilities with access to capital for facility improvements, technology
upgrades, staff additions and new construction via long-term net leases of real estate
assets.
The company says its business model is to "bridge the gap between the growing
demand for high-quality healthcare and the ability to deliver it efficiently and cost-
effectively. In essence, MPT enables hospitals to increase their returns from what they
know best -- operations."
Strengths:
Strong pipeline of potential investments that can add to FFO.

Ample liquidity to purchase additional properties; management has $450 million
available for deals.
Revamped balance sheet through debt restructuring and equity raises; overall
debt reduced by -39% through September 30th, 2010.
Currently trading at a much lower multiple than its peer group with good growth
prospects.


Recent accretive acquisition and pipeline has management projecting a big jump
in FFO in 2011.
Weaknesses:
Q3 FFO of 15 cents per share did not cover its 20-cent quarterly dividend.
Competition for properties is strong and MPW is a smaller player.
Ongoing debate over healthcare law could cloud investors' views of this hospital-
focused REIT.
The company has gotten in trouble in the past investing in development
properties with generally unproven operators.
Hospitals can sometimes get in financial trouble.
MPT reported $16.5 million in Q3 normalized funds from operations (FFO), or 15 cents
per share, flat with the $16.5 million, or 21 cents per share, reported in the year-ago
period. The difference in FFO per share was the result of a 29.9 million-share equity
offering completed in April. The share count grew from roughly 79 million shares
outstanding in the year-ago period to 110 million in the most-recent quarter.
Net income was $8.9 million, or 8 cents per share, compared with $10.4 million, or 13
cents per share, for the year-ago period. Net income included a gain on the disposition
of real estate of approximately $1.5 million related to the substitution of one of MPT's
properties that is under a master lease.
The company reported $29.2 million in total revenue, down from $31.3 million in the
year-ago period. Billed rent, which is the largest component of revenue, grew to $24
million from $20.9 million last year, but straight-line rent in the most recent period was a
-$1.1 million deduction against a year-ago benefit of $3.3 million. Interest and fee
income also dipped to $6.3 million from $7.2 million.
MPT sold one facility for proceeds of $3 million and a net gain of $0.7 million and
wrapped up a property exchange with Community Health Systems that resulted in
improved lease coverage and a $1.5 million gain. MPT provided development funding
and the lease to a $30 million, 36-bed hospital in the greater Phoenix area that will
begin treating patients in 2012. It also started the $17 million redevelopment of a
hospital in Houston.


Top-5 Shareholders:

1 Vanguard Group $112.6 10.1%
2 Deutsche Bank $90.4 8.1%
3 Earnest Partners $62.8 5.0%
4 Goldman Sachs $50.3 4.5%
5 BlackRock $49.2 4.4%
Strong Buy 1
Buy 2
Hold 4
Underperform 1
Sell 0
Analyst Quote: "MPW significantly improved its balance sheet following the 2Q10
capital transactions noted above. We compute a debt+pfd to gross book ratio of 27.4%
versus a 40.0% weighted average for all HCREITs and pro forma fixed charge coverage
of 3.4x inline with the HCREIT median. MPW has no significant maturities until 2013
when about $81M of exchangeable notes mature. During the quarter, MPW purchased
$12.5M of senior notes due 2011, leaving only $9.2M outstanding. Given full availability
on the $330M revolver, $106M of unrestricted cash, and no significant near-term debt
maturities we see no reason why MPW should not be able consummate a significant
amount of acquisitions in the next 18 months." – Jerry Doctrow, Stifel Nicolaus.
BMR Take: Other healthcare-oriented REITs outperformed MPT through the first nine
months of 2009 because of investor concerns over some looming debt repayments in
2011. Newly issued, lower-coupon debt and successful capital raises via sales of new
equity this year allowed the company to strengthen its balance sheet.
With the debt concerns in the rear-view mirror and ample liquidity to buy or develop new
properties, MPT looks poised to grow in 2011 and the dividend looks to be safe. The
company forecast normalized FFO should range from 94 to 97 cents in 2011 due to new
properties already purchased, up from 60 to 64 cents this year. As its operational
performance improves, MPT's yield gap should start to close compared to competitors.


PennantPark Investment
Ticker Symbol: PNNT

Dividends:
Year Paid: 2009 2008 2007 2006 2005
Dividend: $1.00 $0.96 $0.90 $0.36* N/A
* Q4 and part of Q3 only

Structure: Business Development Corp (BDC)
Website: http://www.pennantpark.com/
Business Description: PennantPark is a business development company (BDC) that
focuses on investing in U.S. middle-market private companies in the form of mezzanine
debt, senior secured loans, and equity investments. It typically structures its mezzanine
loans at fixed rates, with an interest-only component in the first few years. Senior loans
are typically variable rate loans where amortization of principal begins in the first year. It
looks to invest primarily in companies that are operating cash flow positive, and for
equity investments, trading at a low multiple.
Strengths:
Experienced management team led by veteran investor Arthur Penn, who

founded the firm in 2007.
Solid history of investing in high credit-quality debt, the firm has only had to put
three of 91 investments it has ever made on non-accrual status.
A new SBIC subsidiary that will give the firm a cheap source of funding and
additional leverage to work with above the BDC limit of 1:1.
The portfolio is highly diversified based on industry, with business services
the top industry at 12%, followed by hotels and gaming at 8%, durable
consumer products at 6%, aerospace at 6%, and education & healthcare
at 5%.
Firm is rotating out of lower-yielding assets into higher-yielding ones.


Weaknesses:
As a BDC, the company always runs the risk that its debt investments might not
get repaid.
BDCs carry strict leverage and other financial covenants. Several weaker BDCs
breached debt covenants due to poor credit quality during the great recession.
Its variable rate liabilities are slightly higher than its variable rate assets, thus a
rise in interest rates would have a modest negative impact.
Most-Recent Earnings: The firm reported fiscal Q3 results, posting a profit of $4.3
million, or 13 cents per share, compared to a loss of -$0.8 million, or -4 cents per share,
a year ago.
Total investment income rose 52% to $16.3 million. The increase was largely due to
growth of the portfolio, the transition of the portfolio from temporary to long-term core
investments, offset by lower interest rates on its variable rate portfolio of investments.
Net investment income climbed 56% to $8.8 million, or 28 cents per share, from $5.7
million, or 27 cents per share, last year when it had less shares. The company recorded
net unrealized depreciation of approximately -$1.5 million on investments, and -$3.2
million on its credit facility.
The company also booked approximately $100,300 in actual gains.
No loans were put on non-accrual status in the quarter.
Book value decreased to $10.69 per share, down from $10.94 at the end of the fiscal
second quarter, hurt by an equity offering below book value to fund its SBIC.
Other Recent News: In August the firm raised $40.6 million in gross proceeds by
selling 4 million shares to fund a SBIC (small business investment company) subsidiary.
The SBIC subsidiary will have $150 million in attractive long-term funding for 10 years
and will be allowed to have 2x leverage. In addition, the subsidiary's leverage won't
count against PennantPark's 1:1 debt/equity BDC limit.


Top-5 Shareholders:

1 Glough Capital $18.8 5.0
2 T.Rowe Price $16.4 4.3
3 Alpine Woods $11.4 3.0
Goldman Sachs $11.1 2.9

4
JP Morgan Chase $9.5 2.5
5
Strong Buy 6
Buy 2
Hold 2
Underperform 0
Sell 0
Analyst Quote: "We continue to believe PennantPark’s strong management team, low

leverage, and recent portfolio growth should allow the company to over-earn our
expected distributions. We view PNNT shares as attractively valued with a projected
10.2% dividend yield and 1.01x P/B." – Brian Harvey, Ladenburg Thalmann
BMR Take: PennantPark's strengths are its focus on investing in mezzanine debt from
companies that are operating-cash-flow positive and on equity investments trading at a
low multiple. We like its experienced management team, led by veteran Arthur Penn; a
solid history of credit quality; and its new SBIC subsidiary.
In the most-recent quarter, the firm continued to rotate out of lower-yielding investments
and into higher-yielding ones, credit quality remained strong, and it has already started
to put the SBA (small business association) funding to work. Trading at just above book
value ($10.69), we think the stock offers additional upside in addition to its robust yield.


Philip Morris International
Ticker Symbol: PM
Dividends:
Year Paid: 2010 2009 2008 2007 2006
Dividend: $2.56 $2.32 $1.54* N/A N/A
* PMI was spun out of Altria Group on March 28th, 2008

Structure: Corporation
Market Cap: $108 billion
Website: http://www.philipmorrisinternational.com
Business Description: Philip Morris International is one of the largest tobacco
companies in the world. It expects to end 2010 with a 32.5% market share in developed
countries (i.e. those that are members of the Organization for Economic Cooperation
and Development, or OECD) and 23.7% in the emerging non-OECD countries,
excluding China. The company is expected to report sales excluding excise tax
collections of $27.4 billion in 2010.
PMI is home to seven of the top 15 brands in the world, including the rights to Marlboro,
L&M, Chesterfield, Lark, and Parliament outside of the U.S. Other brands include Bond
Street and Philip Morris. Its products are sold in 160 countries around the world.
Though the company is officially headquartered in New York and incorporated in
Virginia, management operates out of Lausanne, Switzerland.


Strengths:
Consistent dividend increases.

With its focus on international markets, PMI is largely free of the regulatory
burdens faced by Altria and other U.S.-based tobacco companies.
Tobacco use is generally better tolerated outside of the U.S.
The tobacco business throws off huge amounts of cash that management uses
for dividends, share repurchases, and acquisitions.
The ability to selectively increase prices to offset organic volume declines.
PMI has pared its cost structure in the time since it was spun out of Altria.
Rock-solid balance sheet.
China offers a huge opportunity. PMI currently sells Marlboro in China as part of
a joint venture with China National Tobacco.
Weaknesses:
The China business remains small. China National dominates the $100 billion
market and stymies competition.
Though people are more tolerant of smoking overseas, regulation is growing and
attitudes can change.
Proposed plain packaging of cigarettes and bans on point-of-sale promotions and
displays are two specific potential regulatory risks.
Disruptive excise tax increases can hurt business in certain countries.
The company is the No. 2 player behind British American Tobacco (BTI) in the
fast-growing Latin American market.
Organic volume growth declined by -1.6% through September 30th, 2010.
Fluctuations in the value of the dollar can impact the bottom line (though it can be
a headwind or a tailwind.)
It is in the tobacco business and while it is selling a legal product it is not to every
investor's taste.
PMI just missed Q3 EPS estimates but it raised its full-year guidance.
For the quarter, PMI earned $1.82 billion, or 99 cents per share, compared to $1.79
billion, or 93 cents per share, a year earlier. Adjusted EPS rose 7.5% to $1.00 from 93
cents. Excluding currency, PMI said adjusted EPS rose 5.4%.
Free cash flow grew 33.6%, or 47.4% excluding currency effects, to $2.25 billion.
Revenue, excluding excise taxes, edged up 0.4% to $6.6 billion, and was up 2.5% on a
constant currency basis.


Cigarette volume was 229.2 billion units, up 4.5%. Excluding acquisitions, volume fell -
2.9% in the quarter. Marlboro shipments slipped by -1.2% to 75.9 billion units.
The company raised its full-year forecast to EPS of $3.90-$3.95 from $3.75-$3.85.
Excluding currency, it expects EPS growth of 16-18%, up from a prior forecast of 14-
17%.
Top-5 Shareholders:

1 Capital Research $7.5 7.4
2 State Street $4.2 4.1
3 Vanguard Group $3.8 3.8
Capital World $3.2 3.1

4 Investors
5 BlackRock $2.6 2.5
Strong Buy 4
Buy 8
Hold 3
Underperform 1
Sell 1
Analyst Quote: "Although we think the firm has attractive long-term prospects, some
short-term challenges threaten to weaken its near-term performance. Tobacco firms
have tended to be more resilient than other consumer goods companies in an economic
downturn, but they are not entirely immune to the effects of a recession. Consumption is
likely to decline as cash-strapped consumers quit smoking, and Philip Morris' volume
could further suffer if smokers in important markets such as Russia continue to switch to
cheaper brands." – Philip Gorham, Morningstar
BMR Take: Philip Morris is the only company to remain as a high yield selection after
appearing in our "10 for 2010" report. It is back because of its steady performance and
the strong possibility of future dividend increases. The Philip Morris value creation
model is quite simple. While organic volumes are still slipping, the tobacco industry


continues to have great pricing power. Thus it can raise prices, use its prolific cash flow
to buy back shares, make some accretive acquisitions, increase the dividend, and
repeat. Obviously there is more to it than just that, as the company has done a very
good job of keeping and even gaining market share despite its premium Marlboro brand
being its best seller. Nonetheless, it is this simple shareholder friendly formula that
boosts earnings and creates a solid growth and income story that we expect will
continue.
Niska Storage
Ticker Symbol: NKA

Dividends:
Year Paid: 2010 2009 2008 2007 2006
Dividend: $0.523* N/A N/A N/A N/A
*represents 1 and 1/2 quarters

Website: http://www.niskapartners.com
Business Description: Niska is the largest independent owner and operator of natural
gas storage in North America. It is legally structured as a limited liability company (LLC)
but operates like a master limited partnership.
Niska owns or contracts for approximately 185.0 billion cubic feet (Bcf) of total working
gas capacity. It owns the AECO Hub, which is comprised of two facilities in Alberta,
Canada, and has approximately 134.5 Bcf of working gas storage capacity. Average
prices at the AECO Hub are a frequently quoted benchmark for Canadian gas
producers.
In addition, Niska owns the Wild Goose storage facility in northern California, with
29.0 Bcf of storage capacity, and the Salt Plains storage facility in Oklahoma with
13.0 Bcf of capacity. It contracts for 8.5 Bcf of natural gas storage capacity on a long-
term basis at cost-of-service based rates that it said are currently below market rates.


The company was formerly a unit of EnCana (ECA), which sold it to the private equity
fund Riverstone Holdings in 2006. Riverstone in turn took the company public.
Strengths:
Niska has a high yield with a robust coverage ratio.

The firm has a stable fee-based business that it supplements through playing the
seasonality of natural gas. (It basically purchases natural gas, hedges it, stores it,
and then delivers it at the higher locked-in prices.)
Has strong DCF and dividend growth prospects in CY2012 and beyond.
Has solid organic growth opportunities as well as possible acquisition
opportunities via industry consolidation.
Weaknesses:
Niska's largest storage facility is at the AECO hub, which exposes it to currency
fluctuations and Canadian taxes.
Optimization business depends on seasonal natural gas spreads, which were
depressed the past six months given the weak natural gas market. The business
also adds seasonality.
The stock is a recent IPO without much history as a publically traded company.
No distribution increase is expected next calendar year.
Most-Recent Earnings: Niska reported fiscal Q2 earnings of $33 million, compared to

a loss of -$30 million in the same quarter of last year. Adjusted EBITDA rose 20% to
$39 million.
DCF was $20.1 million. DCF is seasonally strong in the latter half of the year, and the
full fiscal coverage ratio is expected to fall between 1.06x-1.21x.
Long-term firm contract revenues increased to $28.4 million from $26.7 million. Short-
term firm contracts decreased -23% to $9.5 million. Realized optimization revenues
increased to $19 million from $8 million. Optimization revenues are realized when the
gas is physically withdrawn and sold, which typically occurs in the winter months.
However, in the current year rolling hedges forward to capture incremental margins in a
falling market resulted in the recognition of significant realized financial gains in the
current quarter and for six months, the company said.


"Regarding the fiscal year ending March 31, 2011, we currently estimate that our
Adjusted EBITDA will be in the range of $190 million to $205 million," CEO David Pope
said. "While revenues may be somewhat lower than anticipated, operational cost
savings and reduced income taxes are providing offsetting benefits. As a result, we
expect Cash Available for Distribution to be in the range of $110 million to $125 million.
Finally, expansion capital spending this year is now expected to be between $30 million
and $40 million."
Top-5 Shareholders: N/A
Strong Buy 2
Buy 4
Hold 4
Underperform 0
Sell 0
Analyst Quote: "We continue to highlight the substantial cash flows generated under
reservation fee contracts and believe the stability of these revenues, the continued
expansion of its storage capacity, and the subordinated unit structure support the
distribution in a variety of scenarios. We acknowledge the potential volatility of its
optimization activities and have taken a conservative approach in our outlook. As a
result, we believe the units provide an attractive 7%+ yield. We maintain that investors
can capture a stable distribution with upside potential driven largely by low-cost facility
expansion, industry consolidation, and gas price volatility." – Analyst Selman Akyol,
Stifel Nicolaus
BMR Take: Niska has the highest yield among natural gas pipeline and storage MLPs,
largely we believe because of its large trading (optimization) operations, which we think
are a bit misunderstood by investors. Niska has been very good at managing its trading
business and the related hedges, and we don't think it looks particularly risky, as the
company is basically buying on the spot market to store the gas and then immediately
locking in a higher price via a futures contract for a later month to sell, playing the
seasonality of natural gas, which trades at lower prices in warmer months and at higher
prices in colder months. This adds a lot of seasonality to its business, and how this
segment performs depends on the seasonality spread, which was a little weak this year.
A fairly new IPO, we don't think investors are yet fully comfortable with the optimization
aspect of its business, and as such, the stock currently has a premium yield despite


some strong growth prospects in later years. While certainly not without its risks, we
think Niska is a solid opportunity for slightly more aggressive investors looking for a little
extra yield and potential capital appreciation.
Teekay LNG
Ticker Symbol: TGP

Dividends:
Year Paid: 2009 2008 2007 2006 2005
Dividend: $2.37 $2.28 $2.18 $1.985 $1.80

Website: http://www.teekaylng.com
Business Description: Teekay provides LNG (liquefied natural gas), LPG (liquefied
petroleum gas), and crude oil marine transportation services under long-term, fixed-rate
time charter contracts. The current fleet is operating on charters that have between 10
and 23 years left to run. Teekay transports LNG internationally between liquefaction
facilities and import terminals. Its fleet consists of 17 LNG carriers, six LPG/Multigas
carriers and 11 conventional tankers. Two of the 17 LNG carriers were expected to
arrive in late 2010 and three of the six LPG/Multigas carriers are newbuild vessels
scheduled for delivery in 2011.
How Teekay LNG generates revenue is that it is paid monthly in advance based on one
or both of two components -- a capital cost component and an operating expense
component. The capital component adjusts for floating interest rates to make sure that
its costs for financing the vessels doesn't affect how much money it is making by
chartering them out. The operating component adjusts annually for inflation and ensures
that the company is profiting from operating the vessels.
For most of its vessels, the margin is built into the operating component, although three
Suzemax charters are fixed with no adjustments at all. For one Suzemax tanker, the
Teide Spirit, the company can earn additional revenue when current market rates


exceed specified amounts under its time charter. This is really the only vessel whose
revenue could partially be affected by spot rates.
Like most MLPs, the company carries a fair amount of debt, but its visible stream of
cash flow should allow it to handle its commitments over the next few years. A
secondary offering in the future is a possibility, though.
One important thing to remember about Teekay LNG is that its earnings aren't a very
good gauge of how the company is performing. The reason is that Teekay LNG often
shows large foreign currency translation gains or losses on its income statement.
However, the company is not materially exposed to foreign currency fluctuations
because its euro-denominated revenues approximate its euro-denominated expenses
and debt-service costs. For accounting purposes, however, it is required to revalue all
foreign currency-denominated assets and liabilities based at the end of each reporting
period. This has no effect on cash flows or the calculation of distributable cash flow, but
it results in the recognition of unrealized foreign currency exchange gains or losses in
the income statement.
Strengths:
Long-term charters with build-in operating cost escalators provides for

predictable cash flow growth.
Good track record for annual distribution increases.
Disciplined approach to growing its fleet; relationship to parent Teekay Corp.
(TK) provides for easy asset drop downs.
Steady performance track record with rarely a negative surprise.
Weaknesses:
A decline in demand for LNG products could crimp future growth.

Another funding crisis like what occurred in 2008 would raise the cost of
acquiring new vessels.
TGP's euro-denominated revenues and expenses can skew bottom-line reported
results and lead to investor confusion.
Debt level is relatively high.


The partnership grew its distributable cash flow (DCF) to $36.7 million compared to
$29.2 million a year ago. The company said the increase was mainly due to the
acquisition of several vessels, including two LNG carriers and one LPG carrier during
the second half of 2009, as well as the acquisition of the two Suezmax oil tankers and
one Handymax product tanker in March 2010.
The MLP reported a net loss attributable to partners of -$41.6 million in Q3, compared
to a profit of $19.9 million a year earlier. Adjusted net income rose 36% to $23.9 million.
Adjusted net income excludes a number of non-cash items that had the effect of
increasing net income by $63.9 million for the most-recent quarter and by $45.0 million
in Q3 2009.
Net voyage revenues rose 4% to $91.4 million from $87.6 million in the year-ago
quarter. In the liquefied gas segment, revenue rose 5% to $66.6 million, while in the
tanker segment revenue edged 2% to $24.8 million.
Cash flow from vessel operations totaled $66.6 million, up from $53.9 million. It grew
20% to $53.7 million in the liquefied gas segment and 41% to $12.9 million in the tanker
segment.
The company's euro-denominated revenues approximate its euro-denominated
expenses and debt-service costs. TGP isn't materially exposed to foreign currency
fluctuations, but for accounting purposes it is required to revalue all foreign currency-
denominated assets and liabilities at the end of each reporting period. This has no effect
on cash flows or the calculation of distributable cash flow, but it can skew the income
statement positively and negatively from period to period.

Top-5 Shareholders:

1 Berson & Corrado $26.9 1.6%
2 BB&T Asst. Mgt. $10.4 0.6%
3 Pinnacle Holdings $4.3 0.3%
4 Glickenhaus $1.0 0.1%
5 Citigroup $0.7 0.0%


Strong Buy 3
Buy 2
Hold 4
Underperform 1
Sell 0
Analyst Quote: "We expect the TGP units to Outperform the Midstream MLP Sector.
The partnership's contract structure and duration on its fleet should result in stable cash
flows. The partnership's relationship with the parent should provide a conduit for new
vessels for the TGP fleet due to the parent's obligation to offer to sell all new vessels to
TGP upon completion. Distribution growth will be in more meaningful increments, but
not necessarily on a quarterly basis as distribution growth will essentially come with the
addition of new vessels. For these reasons we expect TGP to be an Outperform rated
name." – Mark Easterbrook, RBC Capital
BMR Take: A long-standing member of the Recommended List, Teekay LNG remains
one of our favorite MLPs. Given its steady performance, we think the company's
business model should be rewarded with a yield more in line with a pipeline MLP like
Kinder Morgan (KMP) than a shipping MLP. We picked up on the idea from RBC's
Easterbrook, who suggested it, but we like the notion. Whether it will come about
remains to be seen.
Teekay LNG is so steady it's almost boring but that's a good thing when considering an
income-oriented stock. Its steady fixed-rate contracts with operating cost escalators
provide some of the best visibility in the MLP space. Meanwhile, the company's
methodical approach to adding new vessels leads to calm seas that allow it to grow its
DCF and distribution.
Safe Bulkers
Ticker Symbol: SB
Dividends:
Year Paid: 2010 2009 2008 2007 2006
Dividend: $0.60 $0.60 $0.6211* N/A N/A

* Q4 and Q3 only.


Structure: Corporation
Website: http://www.safebulkers.com/
Business Description: Safe Bulkers provides drybulk transportation services. It hauls
bulk cargoes like coal, grain, and iron ore. The company's fleet consists of 15 vessels
with a combined carrying capacity of 1.3 million deadweight tons. Seven of the vessels
are post-Panamax, four are Panamax, three Kamsarmax, and one Capesize. The
company has eight newbuilds on order for delivery through 2013. The company
maintains its headquarters in Athens, Greece.
Strengths:
Strong balance sheet with low leverage and a solid cash balance that grew to
$137 million at the end of Q3, up from $76 million at end of 2009.
In position to use that balance sheet strength to acquire additional vessels at
distressed prices in what remains a buyer's market.
Modern fleet with an average vessel age of 3.8 years.
Reduced exposure to the spot market as its fleet is mostly signed to long-term
charters; 85% of fleet ownership days chartered for remainder of 2010; 68% for
2011, 58% for 2012 and 52% for 2013.
Attractive valuation at around an EV/EBITDA ratio of 6.3x based on 2011
EBITDA estimate of $140 million.
Weaknesses:
Demand for drybulk shipping is affected by the strength of the global economy,
the demand for commodities and geopolitical forces.
There is currently an overabundance of drybulk ships coming online.
The Baltic Dry Index has been weak, with the index falling 17 days in a row on
Friday to levels last seen in August.
Safe Bulkers gets the bulk of its income from three customers, Japan's Daiichi
and NYK, and U.S. grain processor Bunge (BG). A loss of any one of those
customers could significantly hurt financial results.
Only 32% of the company's shares are publicly traded so trading volumes can be
thin.
Most-Recent Earnings: Safe Bulkers reported its third quarter net income decreased
by -1% to $22 million, or 33 cents per share, from $22.16 million, or 41 cents per share,
in the year-ago period. The weighted shares outstanding increased to nearly 65.9
million from 54.4 million last year.


Net revenues grew by 11% to $40.8 million in Q3 due to an increase in operating days.
The company operated 15.0 vessels on average during the quarter at a time-charter
equivalent (TCE) rate of $29,605, compared to 13.2 vessels and a TCE rate of $30,113
during the third quarter of 2009. The decrease in the TCE rate resulted mainly from
lower time-charter rates.
Vessel operating expenses increased 18% to $5.9 million compared to $5.0 million a
year ago. The increase is mainly attributed to increased crew, repairs, maintenance and
spare parts costs as a result of a 13% increase in ownership days to 1,380. Daily vessel
operating expenses increased by 4% to $4,294.
Safe Bulkers recorded a non-cash loss on the value of its interest rate hedges of -$3.9
million in Q3, compared to a -$6.0 million mark-to-market loss in Q3 2009.
Depreciation increased to $5.2 million compared to $3.4 million in Q3 2009, as a result
of the increase in the average number of vessels in operation.
As of September 30th, 2010, Safe Bulkers had $136.8 million in cash and short-term
time deposits, $5.4 million in long-term restricted cash and $50.0 million in a long-term
floating rate note.
Top-5 Shareholders:

Glickenhaus & $15 2.9%
1 Co.
Kayne Anderson $13.4 2.9%

2 Capital
3 Bank of America $12.7 2.4%
4 Oppenheimer $5.7 1.1%
Delphi $4.8 0.9%

5 Management


Strong Buy 3
Buy 3
Hold 1
Underperform 0
Sell 1
Analyst Quote: "We expect Safe Bulkers's period charter coverage to insulate the
company from rate volatility in the dry bulk market. We remain cautious about the rate
outlook despite continued strong commodity growth slowing from China as we believe
deliveries accelerating from the substantial order book could cause rates to trend lower.
Furthermore, we believe the company is well positioned to seek out acquisitions of dry
bulk vessels due to its low leverage and strong balance sheet. We project SB to have
nearly $160 million in cash on the balance sheet by the end of 2010." – Natasha
Boyden, Cantor Fitzgerald
BMR Take: Safe Bulkers has an unusually strong balance sheet for the shipping sector,
an attribute that it shares with another of our favorites in the space, Diana Shipping
(DSX). Safe Bulkers, however, pays a solid dividend, while Diana suspended its payout
when the credit crunch hit in 2008. We think the company's medium-term charters
protect the distribution and its policy of growing its fleet in a disciplined manner should
lead to solid EBITDA growth.
The company still currently has some spot exposure heading into 2011, which is a risk.
The major challenge facing the shipping industry continues to be the potential for too
many new ships entering the market and too few older ones heading for the scrap pile.
Diana's CEO said earlier this month, though, that he believes as many as 50% of new
deliveries may be cancelled in the new two years.
One potential catalyst for the sector is that India could cut off iron ore exports. The
country's minister for steel has proposed cutting off exports to keep the supplies for
India's own steel industry. Were that proposal to become a reality, it would increase the
global competition for the remaining supplies, with the potential to boost prices and
increase volumes shipped from Brazil and Australia to the Far East and elsewhere.
While certainly not without its risks, we like Safe Bulkers as a contrarian play given that
the drybulk shipping market is down but there are potential catalysts that could emerge.
If they don't come to fruition, though, the company is well enough positioned with its
charters, the stock is cheap enough, and its distribution is secure enough to act as a
ballast to the headwinds.


Other High-Yield Stocks:

Group: Business Development Corps (5)
Name: Hercules Technology Growth Capital (HTGC)
Yield: 7.9%
Description: Hercules is a business development corp. (BDC) that is focused on
investing in life science and technology companies. It provides mezzanine and
subordinated loans, and often gets equity warrants. At the end of Q3, approximately
21.5% of its portfolio was in software firms, 13.0% in consumer and business product
companies, 12.6% in drug discovery, and 12.2% in communication and networking
companies. As of September 30th, 2010, over 97.0% of the company’s debt
investments were in a first lien position, and more than 84.0% of the debt investment
portfolio is priced with a floating interest rate or floating interest rate with a LIBOR floor.
BMR Quick Take: With no leverage outside of cheap SBIC financing, Hercules is well
positioned to leverage up. Credit quality has been so-so with a decent chunk on
writedowns this year, including a large one in Q3 related to Infologix. Trading above its
$9.36 book value, we think there are better BDC options out there.
Name: Apollo Investment (AINV)

Yield: 10.4%
Description: Apollo is a business development corporation (BDC) that invests in debt,
preferred, and equity securities. At the end September 30th, the firm had a portfolio
consisting of investments in 67 companies. Apollo said that 31% of its portfolio was in
senior secured loans, 59% in subordinated debt, 1% in preferred stock, and 9% in
common equity and warrants. The firm generally invests in larger companies than the
average BDC.
BMR Quick Take: Apollo turned in a solid Q3, with credit quality holding steady and net
investment income coming in above estimates. Apollo is paying an attractive dividend
and leverage is low at 0.59:1, meaning the firm has the potential to grow its portfolio and
dividend in the coming year. The stock trades above its book value of $9.58, which has
drifted lower the past year. We think the stock looks close to fairly valued.


Name: Ares Capital (ARCC)

Yield: 8.6%
Description: Ares is a business development corp that provides integrated debt and
equity financing solutions to U.S. middle market companies. At the end of Q3, Ares had
investments in 184 companies, which is up considerably compared to last year after its
purchase of Allied Capital. Its $4.1 billion of portfolio investments (excluding cash and
cash equivalents) was comprised of approximately 37% in senior secured debt
securities (31% in first lien assets and 6% in second lien assets), 29% in senior
subordinated debt securities, 10% in the Senior Secured Loan Program, 17% in
equity/other securities, 6% in collateralized loan obligations, and 1% in commercial real
estate.
BMR Quick Take: Ares had a very good Q3, highlighted by strong investment activity
and strong debt restructuring fees. Non-accrual rates remain high following the Allied
acquisition, but improved during the quarter. Leverage remains low at 0.55x. Book value
edged up to $14.43 in the quarter. The stock could be an option on a dip.
Name: Prospect Capital (PSEC)

Yield: 12.1%
Description: Prospect Capital is a business development corp (BDC) that mostly
invests in the debt of energy and manufacturing firms, although it does have a few
investments in healthcare, financial services, and retail, as well, and its acquisition of
Patriot Capital further diversified its holdings.
At the end of its fiscal Q1 ended September 30th, the firm had investments in 57
portfolio companies. Approximately 42.5% of the fair value of its portfolio is in senior
secured debt, 36.1% in subordinated secured debt, 8.9% in common stock, and the rest
spread out across other investment vehicles. The largest sectors it has investments in
are healthcare at 12.5%, gas gathering and processing at 11.5%, oil & gas production at
10.7%, food products at 7.3%, and manufacturing at 7.2%.
The firm's largest investment is in midstream gas gatherer and processor Gas
Solutions, in which it owns 100% of the equity and secured notes.
BMR Quick Take: Even after a sneaky dividend cut (switch to a monthly payment) and
missing two months of payouts earlier this year, Prospects' net investment income has
still been coming up short of the distribution. Credit quality, meanwhile, remains so-so.
With the stock currently trading above its $10.24 book value, we're not big fans.


Name: Solar Capital (SLRC)

Yield: 10.3%
Description: Solar Capital is a business development corp (BDC) that IPO'd just this
past February, but which initially raised money in 2007. The firm is headed by the
cofounder and former CEO of Apollo Investment Corporation (AINV), Michael Gross.
The firm primarily invests in senior secured loans, mezzanine loans, and equity
securities. At the end of Q3, Solar had investments in 34 portfolio companies. About
73% of its portfolio was in mezzanine financing.
BMR Quick Take: Solar Capital has a number of things going for it, including very low
leverage (less than 0.22x), a solid experienced management team, strong credit quality,
and it's trading just a tad above its book value of $12.09. On the downside, its net
investment income (NII) has been less than its dividend, although the shortfall has been
made up by investment gains. As the firm leverages up, NII should rise. All in all, we
think the stock is a decent option for income-oriented investors.
Group: Mortgage REITs (6)

Name: Annaly (NLY)
Yield: 15.4%
Description: Annaly is a mortgage REIT that invests solely in agency-backed
securities. About 84% of Annaly's portfolio was in fixed-rate securities at the end of Q3;
however, after taking into account the effect of interest rate swaps, the mix was 37%
floating-rate, 14% adjustable-rate, and 49% fixed-rate assets. Leverage at the end of
Q3 was 6.4:1, while book value was $15.16.
BMR Quick Take: Known to have one of the best management teams in the mortgage
REIT space, Annaly had a rare misstep in Q3 as increasing swap liabilities and
declining bond prices took a big chunk out of its book value. Meanwhile, core earnings
suffered from an earlier equity raise and to a degree continued spread compression.
The 8-cent shortfall to Annaly's announced 68-cent dividend was covered by asset
sales. Given the recent problems and above book value multiple, we prefer American
Capital Agency (AGNC) and Hatteras (HTS) to Annaly at present, although we think
the firm can rebound and recover some lost book value as long as the interest rate
environment remain conducive.


Name: Anworth (ANH)

Yield: 13.3%
Description: Anworth is a mortgage REIT that invests primarily in agency-backed
securities. At the end of the quarter, 60% of Anworth's portfolio was in agency hybrid
adjustable-rate MBS; 25% was in agency adjustable-rate MBS; about 11% was in
agency fixed-rate 30-year MBS; 4% was in fixed-rate 15-year MBS; and less than 1%
was in agency floating-rate collateralized mortgage obligations (CMOs). Leverage at the
end of Q3 was 5.5:1, while book value was $6.99.
BMR Quick Take: Trading at right around book value Anworth is relatively cheap.
However, operationally the firm hasn't performed particularly well, with both book value
and the dividend drifting lower. Management has been repurchasing shares and
indicated it will continue to do so, but so far the strategy has not paid off. Anworth is
currently a show me stock.
Name: American Capital Agency (AGNC)

Yield: 19.6%
Description: American Capital Agency is a mortgage REIT that invests in agency-
backed securities. At the end of the Q3, its investment portfolio was comprised of 36%
30-year fixed-rate securities, 22% 15-year fixed-rate securities, 37% adjustable-rate
securities, and 5% CMOs backed by fixed and adjustable-rate agency securities.
Leverage at the end of Q3 was 9.8:1, or 7.2:1 taking into account a recent secondary
offering. Book value was $22.23, $23.43, or $23.78 after accounting for the secondary
offering.
BMR Quick Take: American Capital Agency trades at a premium to other mortgage
REITs, but deservedly so given how well its managers have traded its portfolio to
generate incremental gains and a superior return on equity. However, its core income
doesn't cover the dividend and its strategy has to be considered a bit more risky in
nature than its peers that hold onto positions longer. At present, the firm has about 74
cents per share in undistributed earnings (accounting for the secondary offering) that it
can use to support the dividend in case of any shortfall. Among all the mortgage REITs,
AGNC is currently our favorite given how adroit management has been, and we view
the dividend as safe for at least a few more quarters.


Name: Capstead Mortgage (CMO)

Yield: 8.9%
Description: Capstead is a mortgage REIT that invests primarily in ARM agency-
backed securities. At the end of Q3, its leverage was 6.4:1, while book value was
$11.77.
BMR Quick Take: Capstead has generally underperformed its peers in metrics like
return on equity and saw its dividend drop to 26 cents from 36 a quarter ago and 50
cents two quarters ago. Trading near book value, the stock is relatively cheap, but we
think there are better options in the mortgage REIT space.
Name: Hatteras Financial (HTS)

Yield: 14.5%
Description: Hatteras is a mortgage REIT that invests primarily in ARM agency-backed
securities. The REIT's portfolio consisted of 34.0% hybrid adjustable-rate mortgages
(ARMs) with 36 or fewer months to reset, 58.2% hybrid ARMs with 37 to 60 months to
reset, 7.6% hybrid ARMs with 61 to 84 months to reset, and 0.2% hybrid ARMs with 85
to 120 months to reset at the end of Q3. Leverage at the end of the quarter was 5.6:1,
while book value was $25.83.
BMR Quick Take: Hatteras turned in a decent Q3, and with leverage only at 5.6:1, the
company should start to be able to regain some earnings momentum as it leverages up.
The company already committed $2 billion in forward MBS purchases set to settle in
Q4. Hatteras is currently our second favorite mortgage REIT behind American Capital
Agency.
Name: Chimera (CIM)

Yield: 17.9%
Description: Chimera invests primarily in residential mortgage loans, residential
mortgage backed securities, real estate related securities, and various other asset
classes in the United States. It invests in prime, jumbo prime, and Alt-A residential
mortgage loans, non-agency and agency residential mortgage backed securities (MBS),
debt and equity tranches of CDOs, commercial mortgage backed securities, and
consumer and non-consumer asset backed securities. Book value was $3.29 at the end
of Q3.


BMR Quick Take: Given that Chimera invests in non-agency securities (unlike the
other mortgage REITS mentioned above), it's more of a story of whether or not risk
spreads shrink in the non-agency MBS market, whether the securitization market
continues to improve, and how credit quality holds up. Putbacks to banks could
potentially lead to a windfall for non-agency firms, but it is a wildcard. The stock is best
suited for more aggressive investors.
Group: (Former) Canadian Energy Trusts (5)

Name: Penn West (PWE)
Yield: 4.8%
Description: Penn West is a large Canadian energy producer. It is predominantly
weighted to oil production, with roughly 60% of its 165,000 boe/day of production
coming from oil and natural gas liquids. At the end of 2009, it had overall reserve-life-
index (RLI) of 11.1 years and proved plus probable reserves of 687 million barrels of oil
equivalent (mmboe).
The company owns over 7 million acres in Canada's Western Sedimentary Basin with a
focus on light and conventional oil. The company's holdings stretch from a relatively
new development in southwestern Manitoba, across southern Saskatchewan, through
the heart of Alberta and up to the northernmost regions of British Columbia.
BMR Quick Take: 2010 was a transition year for Penn West, as it worked to become a
more growth-oriented company on the heels of switching to a corporation from a trust.
On that front, it cut its dividend during the year and reduced its debt by -$787 million
through the end of October, good for a debt to funds flow run rate of 2.1x (2.3x including
convertibles), which is much more reasonable than in the past. The company has also
boosted its CapEx budget and 2011 production is expected to rise to between 172,000-
177,000 boe/day. We like the progress Penn West has made heading into 2011, and
think the stock is fairly attractive in the low $20s if energy prices hold up.
Name: Baytex (BTE)

Yield: 5.2%
Description: Baytex is a Calgary, Alberta-based energy producer engaged in the
acquisition, development, and production of oil and natural gas in the Western


Canadian Sedimentary Basin. Approximately 79% of its production is crude and NGLs,
with heavy oil making up about 65% of the total.
BMR Quick Take: Baytex has some of the best assets in the former Canadian trust
space and a strong balance sheet. Operationally, the company has been very strong,
with its Seal play a highlight. Baytex has long been one of our favorite Canadians trusts
(and was a 2009 high yield pick), and it will remain a solid growth and income E&P
company even after it converts to a corporation for next year. However, given the
stock's strong performance this year, we think it is starting to look close to fairly valued.
Name: Pengrowth (PGH)

Yield: 6.4%
Description: Pengrowth is an E&P company principally operating in the Western
Canada Sedimentary Basin and offshore Nova Scotia in eastern Canada. The company
has been one of the most aggressive in shifting strategies ahead converting to a
corporation and is currently focusing on low-cost, low-risk, repeatable drilling
opportunities in the Western Canadian Sedimentary Basin. Specifically, the company
will focus on its Carson Creek, shallow gas, and coalbed methane (CBM) assets. It will
also direct more capital towards its Lindbergh, enhanced oil recovery (EOR), and Horn
River resource plays.
BMR Quick Take: Pengrowth has been one of the more aggressive trusts in trying to
change its structure ahead of its corporate conversion. The company has done a good
job of reducing its debt, and its 2.0x debt to funds flow is now around the industry
average. The biggest disappointment, though, is the lack of near-term production
growth expected for 2011. The distribution is currently pretty much in line with its
excess cash flow after CapEx, and thus looks pretty sustainable. The stock currently
yields about 6.5%. All in all, we think Pengrowth has some potential down the line, but
2011 will be a transition year for the company, and after a solid run in the stock, we're
neutral on the name.
Name: Enerplus (ERF)

Yield: 7.7%
Description: Enerplus owns a diversified portfolio of crude oil and natural gas assets
located in western Canada and the United States. The company's resource plays
include shallow gas/coal bed methane, deep tight gas, crude oil waterfloods,
Bakken/Tight oil, and oil sands located in British Columbia, Alberta, Saskatchewan, and
Manitoba. Last year, purchased an interest in the Marcellus Shale in the Northeast U.S.
Approximately 57% of its production is weighted to natural gas.


BMR Quick Take: With one of the best balance sheets in the sector (its debt-to-trailing
cash flow ratio is 0.9x versus an industry average around 2.0x) and a strong asset base
(highlighted by its Bakken and Marcellus properties), Enerplus is well positioned to
make the transition to a corporation. In addition, the stock should continue to attract
income-oriented investors, as the company plans to maintain its distribution after the
conversion. We continue to like the stock at current levels and would like it even more
on a dip into the mid to low $20s.
Name: Provident Energy (PVX)

Yield: 9.5%
Description: Provident Energy operates a midstream services and marketing business
that is involved in natural gas liquids (NGL) extraction, storage, fractionation, and
transport. Earlier this year, the company divested its upstream production business,
combine it with Midnight Oil Exploration Ltd. in a $460 million transaction to create a
new growth oriented, intermediate sized oil and gas producer. Provident received $120
million in cash and 324 million shares of Midnight valued at $340 million.
BMR Quick Take: Starting in 2011, Provident will pay a 4.5-cent monthly dividend,
which is down from the current 6-cent level. Its long-term payout target ratio is about
80%. The company's results were hurt as higher extraction premiums at its Empress
unit and reduced volumes negatively impacted the company despite generally good
market conditions. Moving forward, the company has about 80% of its frac-exposed
volumes hedged for the 2010/2011 winter season, so there shouldn't be too many near-
term surprises. With an approximately 7% yield based on the reduced rate that will
begin in 2011, we think the stock looks appropriately valued, and we think there are
better natural gas gatherer and processors among its U.S. MLP peers.
Group: MLPs Diversified (2)

Name: Kinder Morgan (KMP)
Yield: 6.3%
Description: Kinder Morgan is the largest pipeline and energy storage company in
North America. It operates 38,000 miles of pipelines that transport primarily natural gas,
crude oil, petroleum products, and carbon dioxide (CO2), and more than 155 terminals
that store, transfer, and handle products like gasoline and coal.


Kinder operates predominantly fee-based businesses and is the largest independent

transporter of refined petroleum products in the United States, a major transporter and
storage operator of natural gas in the Texas, Rocky Mountain, and Midwest areas, the
largest transporter and marketer of CO2 for enhanced oil recovery projects in North
America, the largest independent terminal operator in North America, and a major
transporter of crude oil and petroleum products from Alberta to British Columbia and
Washington state.
The company's reach is impressive. It transports over 2 million barrels of gasoline and
other petroleum products daily through its pipelines and up to 7 billion cubic feet of
natural gas.
The company derives 30% of its DCF from natural gas pipelines, 20% from refined
product pipelines, 27% from CO2, 18% from terminals, and 5% from its Canadian
segment.
Knight Inc. holds the firm's general partnership interest. It's a private company that is
31% owned by founder Richard Kinder, who also serves as chairman and CEO of
Kinder Morgan Energy.
BMR Quick Take: The granddaddy of MLPs, Kinder Morgan is as solid and stable as
they come, with the vast majority of its businesses fee-based (90+%). The company has
consistently raised its distribution the past decade, and done a good job continuing to
grow its operations. One issue we have with the stock is that its coverage ratio is thinner
than many other MLPs. However, think Kinder is a solid core MLP holding.
Name: ONEOK (OKS)

Yield: 5.7%
Description: ONEOK is focused on the gathering, processing, storage and

transportation of natural gas in the U.S. It owns one of the nation’s largest natural gas
liquids (NGL) systems, connecting much of the natural gas and NGL supply in the Mid-
Continent region with key market centers like Chicago.
ONEOK Partners operates in four business segments: Natural Gas Gathering &
Processing; Natural Gas Pipelines; Natural Gas Liquids Gathering &
Fractionation; and Natural Gas Liquids Pipelines.
The general partnership interest is 47.7% owned by ONEOK Partners GP, which is a
subsidiary of ONEOK, Inc. (OKE), a diversified energy company that is one of the
largest natural gas distributors in the country.


Approximately 64% of ONEOK's margin came from fee-based business in 2009, up

from 52% the prior year. Commodity-based businesses contributed 18% of margin,
down from 28%, reflecting lower commodity prices; and 18% of margin was from its
spread business.
BMR Quick Take: With only just a little more than two-thirds its business fee-based,
ONEOK is much more dependant on commodity prices and spreads than some of its
diversified peers. The company expects solid growth, forecasting average annual
EBITDA growth of 14-18% for 2011-2013, resulting in a 1 cent per quarter distribution
increase to unitholders in 2011, and 5-10% annual distribution growth in 2012 and 2013.
However, with a 9-month trailing coverage below 1.0x and a yield on par with
Enterprise, the stock is comparatively overvalued.
Group: MLP Natural Gas Pipelines and Storage

(4)
Name: El Paso (EPB)
Yield: 4.9%
Description: El Paso owns and operates pipeline, storage and other midstream
businesses, consisting of about 12,800 miles of pipeline and associated storage
facilities with aggregate underground working natural gas storage capacity of 102 billion
cubic feet.
It owns 100% of Wyoming Interstate Company, Ltd. (WIC), an interstate pipeline

transportation business primarily operating in Wyoming and Colorado. It also owns a
58% interest in Colorado Interstate Gas Company (CIG), an interstate pipeline company
that is located in the Rocky Mountains; Southern LNG Company, L.L.C. (SLNG), which
owns a LNG storage and re-gasification terminal near Savannah, Georgia; a 51%
interest in El Paso Elba Express Pipeline Company (Elba Express), an interstate
pipeline company that is located in Georgia and South Carolina; and a 25% interest in
Southern Natural Gas Company (SNG), an interstate natural gas company located in
the southeastern U.S.
On November 15th, El Paso agreed to take full control of SLNG and Elba, and up its
stake in SNG to 60% in a deal with its GP El Paso Corp.


BMR Quick Take: With over 90% of its business fee-based and a solid distribution
coverage ratio, El Paso is a solid stock. In addition to those attributes, the company has
still not reached its high 50/50 split, which starts after the dividend reaches 43.125
cents, and it has a solid growth path via its recent drop down acquisitions from its GP El
Paso Corp. We think El Paso is a solid option trading in the low $30s.
Name: Boardwalk Pipeline Partners (BWP)

Yield: 6.6%
Description: Boardwalk is a subsidiary of Loews Corp. (L), the New York-based
holding company with interests in insurance, hotels, offshore oil drilling, and gas
transmission through Boardwalk. Loews owns 70% of the company and the 2% GP
interests. The master limited partnership (MLP) operates three subsidiaries: Gulf South
Pipeline, Texas Gas Transmission, and Gulf Crossing Pipeline.
Its Gulf South Pipeline unit operates a pipeline network that gathers gas from basins
between Texas and Alabama and delivers it to markets within its footprint. It also
connects to third-party systems that deliver gas to the Northeast and Southeast. Texas
Gas Transmission is a traditional long-haul pipeline that moves gas from Gulf Coast
supply areas to more distant markets in the Midwest through its own network, and to
other markets in the Northeast via interconnections with third-party pipelines. Gulf
Crossing Pipeline was formed to operate a new interstate pipeline.
A significant portion, 77%, of the MLP's revenues are backed by firm long-term
contracts with capacity reservation charges. Another 13% comes from utilization
charges of firm contracts, and 11% from interruptible service charges. Its weighted
average contract is 5.6 years.
BMR Quick Take: Boardwalk ran into problems last year when portions of its Southeast
pipeline and the East Texas pipeline were shut down for anomaly remediation, and the
Gulf Crossing Pipeline was shut down for remediation during June. However, the
problems are now resolved and DCF has grown 54% through the first nine months of
this year.
Boardwalk's balance sheet isn't as good as El Paso, but it offers a higher yield, has a
similar fee-based structure, and is not a threat to run into debt problems given that
Loews is its GP. It’s a solid option in the space, and it should benefit from its yield
narrowing compared to El Paso.


Name: Spectra (SEP)

Yield: 5.2%
Description: Spectra is a fee-based, midstream natural gas pipeline and storage
company that became a standalone entity in 2007.
Spectra's operations are made of natural gas businesses that were once part of Duke
Energy (DUK). Duke spun off all of its natural gas businesses as Spectra Energy
Corp. (SE), which is now effectively the general partner of SEP. The parent owns a
large portfolio of related gas businesses and can use the MLP as a future drop-down
vehicle for assets if it chooses.
SEP provides natural gas transportation and storage services to customers in the
United States, including more than 3,100 miles of transmission and gathering pipeline
and approximately 49 billion cubic feet (Bcf) of natural gas storage. These assets are
capable of transporting 3.26 Bcf of natural gas per day from growing supply areas to
high demand markets.!It owns 100% of East Tennessee Natural Gas, Ozark Gas
Transmission, and Saltville Gas Storage Company in Virginia.
The company also has significant ownership interests in Gulfstream Natural Gas
System (24.5%), which operates a 745-mile long pipeline that stretches across the Gulf
of Mexico from Mobile, Alabama, to Tampa, Florida, and Market Hub Partners (50%).
The latter operates storage facilities with approximately 43 billion cubic feet (Bcf) of
storage capacity in Texas and Louisiana.
BMR Quick Take: With a very high percentage of its business fee-based, a very solid
coverage ratio, a low debt to EBITDA level, and strong DCF growth, Spectra is a very
solid MLP option Operationally, the company is really strong, although its yields reflects
its strength. We'd be buyers on any dips into the low $30s.
Name: PAA Natural Gas Storage (PNG)

Yield: 5.4%
Description: PAA Natural Gas Storage owns and operates two natural gas storage
facilities located in Louisiana and Michigan that have an aggregate working gas storage
capacity of 40 billion cubic feet (Bcf) and an aggregate peak injection and withdrawal
capacity of 1.7 Bcf per day and 3.2 Bcf per day, respectively. The Louisiana facility is
known as Pine Prairie and the Michigan facility, outside of Detroit, is called Bluewater.
The company also leases storage capacity and pipeline transportation capacity to
increase its operational flexibility and the services it can offer to customers. As of April


1st, 2010, PNG had 5.3 Bcf of storage capacity under lease and had secured the right
to 286 MMcf per day of transportation service on various pipelines.
Approximately 85% of PNG's total revenue will be generated from storage services
covered by contracts in existence as of April 1st, 2010. Those contracts cover storage
capacity that the company plans to bring into service this year. Roughly 13% of total
revenue, or approximately $16 million, will come from hub services, up from 7% of total
revenue last year. About 2% of revenue will come from the sale of crude oil and other
liquids produced at its Michigan facility.
The company said the weighted average remaining terms of its existing portfolio of firm
storage contracts is approximately 3.7 years at Pine Prairie and approximately 2.2 years
at Bluewater. As of the end of 2009, Iberdrola Renewables, Inc. and Guardian Pipeline,
LLC accounted for approximately 17% and 13% of PNG's revenues, respectively.
BMR Quick Take: A new MLP that was spun out of Plains All American Pipeline
(PAA), operationally PAA has been a solid operational performer as expected given the
high fee-based nature of it business. Given its relatively limited history and metrics by
and large that aren't as attractive as some of its rival, as well as relatively slow
distribution growth, we think the stock currently looks appropriately priced.
Group: MLP Crude and Refined Pipeline

Operators (5)
Name: Plains All American Pipeline (PAA)
Yield: 6.1%
Description: Plains All American Pipeline focuses on supplying refineries in the
Midwest with the crude oil they need to produce refined products. Subsequent
acquisitions have extended its reach into Canada, and in 2006, Plains completed a $2.6
billion merger with Pacific Energy. The company spun off its storage assets as a
separate MLP known as PAA Natural Gas Storage (PNG) earlier this year.
Plain's assets include 16,000 miles of pipeline; 85 million barrels of liquids storage
capacity; 1,475 LPG rail cars; a fleet of 600 trucks and 1,000 trailers; 68 barges and 39
tug boats. It has the capacity to move 3 million barrels of liquids daily. The company has
operations in 40 states and five Canadian provinces.
Plains operates in three segments: Transportation, Facilities, and Marketing. The

Transportation and Facilities businesses, as is the case with most pipeline and storage
companies, are primarily fee-based and not directly affected by the price of the


underlying commodity. Those two components are responsible for about 77% of the
MLP's cash flow. Where Plains differs from other pipeline MLP's is that it will also buy
and resell crude oil, refined products, and LPG inventory to meet the needs of its
customers.
BMR Quick Take: We consider Plains a very solid crude pipeline operator with a
steady, reliable business. However, with a distribution growth target of 3-5% annually,
we think there are more attractive MLP options.
Name: Enbridge Energy Partners (EEP)

Yield: 6.8%
Description: Enbridge Energy Partners owns and operates the Lakehead System in
the U.S. The 1,900-mile Lakehead System has been in operation for nearly 60 years
and is the primary transporter of crude oil from Western Canada to the U.S.
The system spans from the international border in North Dakota to the international
border near Marysville, Michigan, with an extension across the Niagara River into the
Buffalo, N.Y. area. It consists of approximately 3,500 miles of pipe with diameters
ranging from 12 to 48 inches; 60 pump station locations; and 64 crude oil storage tanks
with a capacity of about 11.6 million barrels.
Lakehead serves all the major refining centers in the Great Lakes, Midwest, and
Ontario, Canada, and through connections with the affiliated Canadian pipeline, this
system has access to refineries in the Mid-Continent and Gulf Coast. Total deliveries on
the Lakehead System averaged 1.54 million bpd in 2007, meeting approximately 71% of
refinery demand in Minnesota; 60% in the greater Chicago area; and 67% in Ontario.
The partnership operates in two segments: Liquids and Natural Gas. The Liquids
segment reflects its ownership of the Lakehead pipeline, while the Natural Gas segment
consists of gathering, transmission, processing, treating and marketing subsidiaries
operating in the Mid-Continent and Gulf Coast regions.
BMR Quick Take: Enbridge offers investors very similar metrics and distribution growth
rates (2-5% annually through 2103) as Plains All American, but a slightly better yield.
Name: Holly Energy Partners (HEP)

Yield: 6.5%
Description: Holly owns 2,500 miles of crude and refined pipelines; 11 terminals and 3
loading rack facilities in seven states; and a 25% interest in the Salt Lake
City-Las Vegas pipeline and terminal. One hundred percent of the company's revenue is
fee based and derived from long-term contracts. It has no exposure to commodity


prices. It has a close relationship with GP and refiner Holly Corp (HOC), which also
owns 45% of Holly Energy.
The Salt Lake City-Las Vegas pipeline and terminal, scheduled for completion in the
first half of this year, is a 400 mile refined products pipeline. Holly Corp owns
75% of the project and privately held Sinclair owns the remainder. Holly Energy will
have the option to purchase the pipeline for the cost of the project, estimated to be 205
million, plus 7% interest.
BMR Quick Take: Holly has been a very strong performer since June, and the yield
premium it had been afforded due to its reliance on GP and refiner Holly Corp has
closed compared to Enbridge and narrowed considerably to Plains. We'd move to the
sidelines following the strong run.
Name: Magellan Midstream Partners (MMP)

Yield: 5.3%
Description: Magellan Midstream Partners is mainly a petroleum pipeline operator. It
owns 9,500 miles of petroleum pipelines with 52 petroleum terminals.

It also owns 27 inland petroleum product terminals and six marine terminals; as well as
1,100 miles of ammonia pipelines. The company expects fee-based activities to make
up over 85% of its operating margin.
The part that is commodity price sensitive is its transmix business, which benefits from
slightly higher commodity prices. Transmix is a by-product of refined products pipeline
operations. It is created by the mixing of different specification products during pipeline
transportation. Transmix processing plants split the transmix back into specification
products, such as unleaded gasoline and diesel fuel.
Last year, the company merged with it GP, Magellan Midstream Holdings, eliminating its
incentive distribution rights (IDRs). Magellan said the deal would benefit unitholders of
both stocks by: "effectively lowering MMP's cost of capital, allowing it to be more
competitive for potential future acquisitions and expansion projects; maintaining MMP's
strong balance sheet and liquidity through 100% equity consideration; simplifying the
current organizational structure, which should make MMP more attractive to a broader
investor base; and reducing administrative costs associated with a second publicly
traded entity."
BMR Quick Take: Last year was largely a transition year for Magellan as it merged with
its GP. We liked the merger, as it sets the company up for outsized growth in the years
ahead that should lead to strong distribution growth, as not having to pay IDRs gives it
nice cost of capital advantage and will allow more cash to flow to unitholders since it no


longer has to share it with a general partner. The MLP is on track for a nice year, with a
4% increase in its distribution this year, and 2011 should be even better. Given a solid
run, though, we think the stock is currently more of a "Hold/Accumulate on Weakness"
type stock.
Name: Sunoco Logistics (SXL)

Yield: 5.8%
Description: Sunoco Logistics is an oil-focused pipeline and storage MLP formed in
2002. The partnership offers transportation, terminaling, and storage of refined products
and crude oil. It also buys and sells crude oil in the U.S.
The partnership, spun out of Sunoco (SUN), operates in three segments. Its
Refined Products Pipeline System provides transportation services for multiple grades
of gasoline and middle distillates, such as heating oil, diesel, and jet fuel, originating
from refineries in the Philadelphia; Toledo/Lima, Ohio; and Beaumont/Port Arthur,
Texas, areas. It owns 2,200 miles of refined product pipelines.
The 3,850-mile Crude Oil Pipeline System provides transportation services primarily in
Texas and Oklahoma, and also services the Midwestern United States, delivering crude
to refiners along the Gulf Coast and in Ohio. Also included in this segment is Sunoco's
crude lease acquisition (aka its contango business) and marketing business.
The Terminal Facilities unit consists of 41 refined products terminals, including its
Nederland Terminal, which is an approximately 20.0 million barrel marine crude oil
terminal on the Gulf Coast of Texas; several other crude oil terminals serving refineries
in the Philadelphia area; and a 1.0 million barrel liquefied petroleum gas (LPG) terminal
near Detroit, Michigan.
The company tracks inventories in Cushing, Oklahoma, which is the trade point for the
West Texas Intermediate Crude contract on the New York Mercantile
Exchange. When inventories at Cushing are high, it tends to depress the current- month
price for crude below the futures price, which is the definition of a contango
marketplace.
When that happens Sunoco makes use of unused storage to buy spot oil and
immediately sell a futures contract, locking in the difference. The business is only
available, however, when the contango conditions exist.
BMR Quick Take: Sunoco has taken advantage of a strong contango market, as well
as some acquisitions, to post some strong results this year. In addition, the company
said it expects strong 6% distribution growth next year. The worry is that the contango


market could tighten next year as more storage capacity comes online. Given the stocks
strong run since we named it a to pick in our mid-year MLP report, we'd move Sunoco
into the "Hold" category.
Group: MLP Natural Gas Gathering & Processing

(4)
Name: Copano Energy (CPNO)
Yield: 7.7%
Description: Copano Energy is a midstream natural gas company that provides gas
gathering, intrastate transmission, processing, conditioning, and treating. The
company's operations are located in Oklahoma, Texas, Wyoming, and Louisiana. It
owns 6,200 miles of natural gas gathering and transmission pipelines, as well as 7
natural gas processing plants with approximately 1 billion cubic feet per day of
combined processing capacity. It also operates 200 miles of natural gas liquid pipelines
and a 59-mile crude oil pipeline.
Founded in 1992 by former CEO John Eckel with a single 23-mile pipeline, Copano has
grown through acquisitions and internal growth projects. Eckel died in November 2009;
former President & COO Bruce Northcutt took over. Copano's major acquisitions
include the 2001 purchase of the Houston Central Processing Plant, one of the largest
gas processing and treating plants in Texas; the acquisition of Tulsa-based ScissorTail
Energy in 2005, which established its presence in central and eastern Oklahoma; and
the 2007 purchase of Denver-based Cantera Natural Gas, which gave it a footprint in
the Rocky Mountains, including Wyoming's Powder River basin and its coal and coal
methane deposits.
Earlier this year, the company signed a deal to create a 50/50 joint venture with the
intrastate pipelines unit of Kinder Morgan (KMP) to provide gathering, transportation
and processing services to natural gas producers in the Eagle Ford Shale resource play
in South Texas.
Copano is legally structured as a limited liability company E an LLC E and not as a

master limited partnership (MLP). It receives the tax-advantages of an MLP, but Copano
has no general partner and thus no responsibility for incentive distribution rights
payments. The company issues a schedule K-1 to shareholders the same as an MLP.
BMR Quick Take: Copano has the highest yield of the natural gas gathering stocks we
cover, but operationally it has lagged and its distribution has been exceeding its DCF all


year, with coverage ratios of 0.81 in Q1, 0.87 in Q2, and 0.93 in Q3. The company's
Eagle Ford JV struck a nice deal earlier that this month, and if that and other growth
projects can spun distribution growth next year, the stock could bounce as its yield
spread to its peers narrows. As such, the stock is an option for more aggressive
income-oriented investors.
Name: MarkWest Energy Partners (MWE)

Yield: 6.0%
Description: MarkWest is engaged in the gathering, transportation, and processing of

natural gas and refinery off-gas; the transportation, fractionation, marketing, and storage
of natural gas liquids (NGLs); and the gathering and transportation of crude oil. It is the
largest natural gas processor in the Appalachian region of the United States and has
extensive natural gas gathering, processing, and transmission operations in the
Southwestern and Gulf Coast regions. The company is actively involved in building,
processing, and fractionation capacity in the Marcellus Shale play.
Approximately 39% of its contracts are fee-based, 31% keep whole, and 30% POP and
POI contracts. The company has exposure to commodity prices, but as of March 31st,
2010 it was 70% hedged this year, 40% in 2011, and 30% in 2012.
The company pays no incentive distribution rights to its GP.
BMR Quick Take: MarkWest has been a strong performer this year, and with a solid
coverage ratio, we expect strong distribution growth in 2011. MarkWest management
said it is looking to maintain between a 1.2x-1.3x coverage ratio. With the midpoint of its
2011 DCF guidance suggesting a coverage ratio of 1.4x, there is obviously room to
raise the distribution, with a 1.2x-1.3x coverage ratio suggesting a quarterly distribution
increase to between 70-76 cents.
We' e expecting the company to be a little conservative, moving it to between 68-70

cents, although there is certainly enough cushion for the company to move it higher,
especially given that 70 cents is a 1.2x coverage ratio at the low end of its DCF
guidance ($240-$280 million). Given MarkWest's growth and distribution prospects, we
have a $43 target on the Recommended List stock.


Name: Regency Energy Partners (RGNC)

Yield: 7.0%
Description: Regency is a natural gas gatherer and processor that also owns pipeline
and contract compression services. It owns approximately 6,000 miles of gathering
pipeline and nine active treating/processing plants in Louisiana, the Mid-continent
region (Kansas and Oklahoma), and East, South and West Texas.
It also holds a 49.99% interest in the Haynesville Joint Venture, which operates the
Regency Intrastate Gas System consisting of 450 miles of intrastate pipeline in North
Louisiana. Regency's assets also include approximately 753,328 of third-party revenue-
generating horsepower of compression in Arkansas, Louisiana and Texas.
Regency has three primary reporting segments: Gathering & Processing,

Transportation, and Contract Compression.
The company's general partner, GE Energy Financial Services (GE EFS), a unit of
General Electric (GE), agreed in May to sell its entire GP interest to Energy Transfer
Equity (ETE). GE kept its 24.7 million Regency common units. As part of the deal
Regency will also acquire a 49.9% stake in the Mid-Continent Express Pipeline from
ETE, whose partner in the venture is Kinder Morgan Energy Partners (KMP). Kinder
Morgan manages the pipeline.
Regency is a play on the infrastructure build out of the Haynesville shale natural gas
play in Louisiana, where the bulk of its CapEx has been going.
BMR Quick Take: Despite pretty much completing its major Haynesville project,
Regency's coverage ratio still fell below 1.0 in Q3 (0.91). However, the company
expects it to rise above 1.0 in Q4, and then next year it can think about increasing the
distribution. With 80% of its business expected to come from fee-based operations next
year, the company's yield should start to narrow and its price increase.
Name: Targa Resources Partners (NGLS)

Yield: 6.8%
Description: Targa is a natural gas gathering and processing company that owns
11,300 miles of natural gas gathering and NGL pipelines, with natural gas gathering
systems covering approximately 14,400 square miles and 22 natural gas processing
plants with over 10,250 MMcf/d of gross processing capacity. These assets are located
near the Permian Basin, Fort Worth / Bend Arch Basin, South Louisiana Basin, and
deepwater and deep shelf Gulf of Mexico.


The company also has an integrated NGL logistics and marketing business, with 13
terminals, net NGL fractionation capacity of approximately 300 Mbbls per day, and NGL
storage capacity of over 100 MMbbls. In addition, Targa owns 13 storage/transport
terminal facilities in a number of states including Texas, Kentucky, Mississippi, Florida,
Louisiana, New Jersey and Tennessee. It owns or leases 21 pressurized NGL barges,
80 transport tractors, 113 tank trailers, and 897 railcars.
In aggregate, 70% of Targa's contracts are of the percent-of-proceeds variety, 28% are
keep whole, and 1% were fee-based or hybrid in Q1, ex straddles. Approximately 80%
of its natural gas and NGL equity volumes are hedged in 2010.
Targa said it had $630 million in total liquidity as of March 31st, 2010, and that it has no
debt maturities until February 2012.
BMR Quick Take: While its results haven't been setting the world on fire, Targa has
maintained a high coverage ratio and been able to increase its distribution. Smartly, the
company has continued to focus on fee-based growth projects. While the distribution is
safe, we think the stock looks close to fairly valued.
Group: MLP Oil and Gas Production (3)

Name: Linn Energy (LINE)
Yield: 7.1%
Description: Houston-based independent oil and gas producer Linn Energy focuses on
developing long-life properties in the United States. The bulk of Linn's production comes
from the Texas Panhandle and Oklahoma, but it also has leases in the Brea-Olinda field
east of Los Angeles. The California fields, discovered in 1880, account for 13% of the
company's total proved reserves of 1.7 trillion cubic feet equivalent (Tcfe) of natural gas
and oil. A good chunk of the Mid-Continent reserves were purchased from Dominion
Resources (D) in 2007.
Linn's natural gas production is hedged 100% through 2015, while oil production is
100% hedged through 2013 and 70% hedged in 2014.
Linn is legally an LLC and does not pay incentive distribution rights to a general partner.
BMR Quick Take: Linn has done a good job of growing its production through both
acquisitions and organic growth, and the MLP erased any lingering fears of a
distribution cut due to the roll-off of favorable natural gas hedges when it raised its


distribution. The company is now almost fully hedged until 2014, taking into account its
anticipated production growth, which creates solid visibility into DCF and distribution
growth. In addition, it has left itself upside in case energy prices spike with the use of
put hedges. We'd buy the stock on any dips.
Name: EV Energy (EVEP)

Yield: 7.8%
Description: EV Energy Partners is an E&P firm founded in 2006 with properties in the
Appalachian Basin, the Monroe field in Louisiana, Michigan, the Austin
Chalk, South Central Texas, the Permian Basin, the San Juan Basin, and the
Mid-continent area. The firm has proved reserves of 415 Bcfe, of which 93% is proved
developed. Approximately 70% of its reserves are natural gas, the remainder natural
gas liquids and oil.
The company has made $560 million in acquisitions in 2010.

BMR Quick Take: EV has done a nice job of cutting its debt, layering on hedges, and
making acquisitions. It grew production by nearly 14% in Q3 and had a distribution
coverage ratio of about 1.09x for the quarter. While we look on the stock much more
favorably than we did a year ago, we prefer Linn at this time.
Name: Legacy Reserves (LGCY)

Yield: 7.9%
Description: Legacy Reserves is a production company that primarily operates in the

Permian Basin and mid-continent regions. Management and insiders own approximately
27% of the company and it pays no incentive distribution rights, which it says creates an
alignment of interests with shareholders. Apollo Management offered to take the
company private last year for $14 a share, but Legacy rejected the deal and opted to
remain a publicly traded MLP.
Its producing properties in the Permian Basin are located in mature fields.
Approximately 73% of Legacy's production in 2009 was from properties under primary
recovery, 15% from secondary recovery (waterflood) and 12% from tertiary recovery
(CO2 or N2 injection).
On a proved reserve basis, 77% are primary, 14% are secondary and 9% are tertiary
reserves.


At year-end the company had proved reserves of approximately 37.1 MMBoe, of which
72% were oil and natural gas liquids and 84% were classified as proved developed
producing, 1% were proved developed non-producing and 15% were proved
undeveloped as of December 31, 2009.
BMR Quick Take: Legacy's DCF has been down year over year as it has pumped more
money into development capital, although its coverage ratio is still above 1.0x. The
stock is a decent option to consider, although we prefer others in the E&P MLP space
more.
Group: Propane Distribution (4)

Name: AmeriGas (APU)
Yield: 6.0%
Description: AmeriGas is a retail propane distributor with operations in nearly all 50

states serving approximately 1.3 million customers. Approximately 89% of sales (based
on gallons sold) are to retail accounts and approximately 11% are to wholesale.
Sales to residential customers in fiscal 2009 represented approximately 41% of retail

gallons sold; commercial/industrial customers 36%; motor fuel customers 13%; and
agricultural and transport customers 10%. The customer base is diverse, with no single
customer accounting for more than 5% of revenue.
AmeriGas sold 1.05 billion gallons of propane in 2009. It's the nation's largest propane
distributor, with a market share of 10% in a highly fragmented industry. The company
targets acquiring 20 million additional gallons each year, which is doable given the large
number of independent marketers.
Its ACE cylinders were available at approximately 28,000 retail locations throughout the
United States. It's a counter cyclical business to the heating season. Sales average 100
million cylinders per year. Over 90% of the AmeriGas propane supply was purchased
under supply agreements with terms of 1 to 3 years last fiscal year.
BMR Quick Take: While weather and propane prices can affect its operational result,
AmeriGas is solid and consistent propane MLP. Given its low growth, though we think
there are better places to park money.


Name: Inergy (NRGY)

Yield: 7.2%
Description: Inergy is the fifth-largest propane operator in the U.S., serving 800,000
customers in 28 states. The company also operates a small midstream business,
including natural gas facilities, a LPG storage facility, and a NGL business, which
includes natural gas processing, NGL fractionation, NGL rail and truck terminals, bulk
storage, and trucking and marketing operations.
BMR Quick Take: Inergy's shares have struggled after the firm announced that it was
buying its GP Inergy Holdings LP (NRGP). This is a very dilutive deal for Inergy. The
big positive of the deal for Inergy is that it will eliminate the IDR rights and thus give the
company a better cost of capital. However, for the deal to be worthwhile, the company is
going to have to use that better cost of capital to find incremental growth projects or
acquisitions. The company assumes it can deploy $375 million in additional capital at an
8.8x EBITDA multiple per year. Given that this is on top of $350 million it is spending on
two big projects, that's a fairly aggressive assumption; although, the company's
management has a good track record, so one cannot just assume they won't be able to
reach that spending goal.
Based on the company's assumption, the deal won't really become worthwhile until
sometime in the second or third year (2012-2013).
Name: Suburban (SPH)

Yield: 6.2%
Description: Suburban is the fourth-largest propane distributor in the U.S., serving

approximately 850,000 customers in 30 states. It operates primarily on the east and
west coasts. Approximately 95% of the propane gallons sold by Suburban in fiscal 2009
were to retail customers: 43% to residential customers, 32% to commercial customers,
9% to industrial customers, 6% to agricultural customers, and 10% to other retail users.
The company also sells fuel oil and refined fuels to approximately 90,000 residential
customers in the northeast, and markets natural gas and electricity through its wholly-
owned subsidiary, Agway Energy Services, LLC, in the deregulated markets of New
York and Pennsylvania, primarily to residential and small commercial customers. It
serves nearly 71,000 natural gas and electricity customers in New York and
Pennsylvania.


The company sold approximately 343.9 million gallons of propane and 57.4 million
gallons of fuel oil and refined fuels to retail customers during the year ended September
26th, 2009.
BMR Quick Take: With no IDRs, low debt, a bountiful coverage ratio, and the lowest
EV/DCF ratio in the group, Suburban remains a solid option in the propane sector.
Name: Ferrelgas (FGP)

Yield: 7.4%
Description: Ferrelgas is the second-largest propane distributor in the U.S., serving

approximately one-million customers in all 50 states, D.C, and Puerto Rico. The
company operates its cylinder exchange program under the Blue Rhino name, where it
is the largest national provider.
BMR Quick Take: Ferrelgas is our least favorite propane MLP, although it does have
the highest yield in the group.
Group: MLP Coal Royalty & Production (3)

Name: Natural Resource (NRP)
Yield: 6.8%
Description: Huntington, West Virginia-based Natural Resource owns and manages

coal properties in Appalachia, the Illinois Basin, and the Powder River Basin regions. It's
the fifth-largest owner of coal reserves in the U.S.
The company leases its properties to coal mine operators in exchange for royalty
payments. It also engages in the coal infrastructure business and the ownership of
aggregate reserves that are leased to operators. In addition, the partnership manages
oil and gas properties and timber assets in Appalachia. Natural Resource was formed in
2002 through the combination of assets owned by three privately held firms and Arch
Coal (ACI).
At the end of 2009, the company owned or controlled approximately 2.1 billion
tons of proven and probable coal reserves, and its coal reserves were subject to
210 leases with 72 lessees. Approximately 22% of its production is metallurgical and
78% steam coal. Coal royalty accounts for 78% of NRP's revenue stream.


BMR Quick Take: After underperforming last year, NRP's Q3 results showed that the
company is back on track. Meanwhile, the company issued 32 million units to purchase
the IDRs from its GP. The dilution from the deal will limit per unit growth in the near
term, but should be a long-term positive.
Name: Alliance Resources (ARLP)

Yield: 5.5%
Description: Tulsa, Oklahoma-based Alliance Resources is the only coal-

producing company structured as a master limited partnership. Alliance is the
fifth-largest Eastern U.S. coal producer. It has been a public MLP since 1999, but
its predecessor companies date to 1971. It primarily produces low-, medium- and
high-sulfur coal, coal used by utilities and industrial companies.
At year-end 2009, the company had approximately 647.2 million tons of coal
reserves in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West
Virginia. It produced 25.8 million tons of coal and sold 25 million tons, of which
10% was low sulfur, 22.5% was medium sulfur and 67.5% was high sulfur. It sold
92% of its output to utility operators.
BMR Quick Take: Our top coal MLP pick in our mid-year 2010 MLP special report,
Alliance's stock has performed very well since our report. Given its performance and still
sector low yield, we think the stock is fairly valued to a little overvalued at present.
Penn Virginia Resources (PVR)

Yield: 6.9%
Description: Penn Virginia Resources leases coal properties, but doesn't engage in
actual mining. The Radnor, Pennsylvania company controls 829 million tons of coal
reserves in north and central Appalachia, the San Juan Basin, and Illinois. Ancillary
businesses include coal services, timber, and gas royalties.
The partnership and its predecessor companies have been in the coal business since
1882. Contracts with PVR's coal lessees are long-term, with an average life of 10 to 15
years.
The company also has a natural gas gathering and processing business, with 4,118
miles of pipelines and six processing plants in the mid-continent region. The gas
business contributes about 33% to the MLP's long-term margin and EBITDA. For the
gas processing business, 19% was fee-based in 2009, 53% percent of proceeds, and


28% keep whole. The unit has a deal with Range Resources (RRC) to build and
operate gas gathering pipelines and compression facilities in the Marcellus Shale.
Currently, 60% of 2010 and 58% of 2011 price-sensitive volumes are hedged.
BMR Quick Take: Penn Virginia is yet another MLP that has decided to merge with its
GP, Penn Virginia GP Holdings (PVG), eliminating its IDRs. Once again, this should
improve its cost of capital over the long term, but will be highly dilutive in the short term,
with Penn Virginia set to issue about 38.3 million new shares. Added debt and higher
maintenance capital, meanwhile, hurt Q3 DCF. Given its current yield, we think the
stock is fairly valued.
Group: MLP Sea Transport (4)

Name: Navios Partners (NMM)
Yield: 9.0%
Description: Navios Maritime Partners is a drybulk shipper whose fleet consists of ten
modern Panamax vessels, five modern Capesize vessels, and one modern Ultra-
Handymax vessel.
Panamax vessels are highly flexible vessels capable of carrying a wide range of drybulk
commodities, including iron ore, coal, grain and fertilizer, and of being accommodated in
most major discharge ports, while Capesize vessels are primarily dedicated to the
carriage of iron ore and coal.
Its fleet is operating on charters that at present average 4.3 years in length. The
company also carries credit default insurance on all of its charters, so if a counter party
defaults it is protected.
BMR Quick Take: With all its vessel currently under contract with an average of 4.3
years remaining and a strong coverage ratio, Navios looks like a solid option in the MLP
shipping space. However, it does trade at a premium on a EV/EBITDA basis compared
to other drybulk shippers.


Name: Teekay Offshore (TOO)

Yield: 6.4%
Description: Teekay Offshore Partners is an international provider of marine

transportation and storage services to the offshore oil industry. The MLP owns a
51.0% interest in and controls Teekay Offshore Operating L.P., a Marshall Islands
limited partnership with a fleet of 33 shuttle tankers (including 6 chartered-in vessels), 4
floating storage and offtake (FSO) units, and 11 conventional crude oil tankers.
The MLP also has direct ownership interests in 2 shuttle tankers, 2 FSO units, and 2
floating production, storage and offloading (FPSO) units. Teekay has 2 new Aframax
shuttle tankers that are being built.
Teekay Offshore typically signs customers to 3-10 year contracts. Twenty-one of the
shuttle tankers, though, are signed to life-of-field contracts that average about 15 years,
while the rest average 5 years. Contracts for FSOs average about 4 years, while
conventional tankers average 7 years, plus five one-year options.
BMR Quick Take: A new deal with Statoil replacing volume-dependant contracts with
fixed-rate, time-charters should give Teekay Offshore some greater visibility moving
forward and reduce seasonality. We think the stock is a solid "Hold."
Name: Teekay Tankers (TNK)

Yield: 10.2%
Description: Teekay Tankers is a crude oil shipper. The company owns a fleet of nine
double-hull Aframax-class oil tankers, six double-hull Suezmax-class oil tankers, and
one VLLC newbuild. The MLP agreed to acquire two vessels from parent Teekay (TK)
in November.
Teekay Tankers' policy is to pay a variable quarterly dividend equal to its cash available
for distribution, subject to any reserves its board of directors may from time to time
determine are required. Since the company's initial public offering in December 2007, it
has declared a dividend in ten consecutive quarters
BMR Quick Take: The most aggressive of the Teekay's, Teekay Tankers has had to
navigate a still difficult tanker spot market. It's done a good job, but the stock is best
suited for more aggressive investors looking for a rebound in spot prices.


Group: MLP Others

Name: Terra Nitrogen (TNH)
Yield: 5.3%
Description: Terra Nitrogen is a nitrogen fertilizer maker with the capacity to produce
1.9 million tons (32% nitrogen basis) of urea ammonium nitrate solutions (UAN)
annually and 1.1 million tons of ammonia, the basic ingredient for most nitrogen fertilizer
and many industrial products. The company operates one nitrogen manufacturing
facility in Verdigris, Oklahoma, and terminal operations in Blair, Nebraska and Pekin,
Illinois. General Partner Terra Industries, which is now owned by CF Industries (CF),
owns approximately 75% of the MLP.
BMR Quick Take: We've never been big fans of Terra Nitrogen, largely due to its
complete lack of trying to grow its business, but a improving agricultural market and still
low natural gas prices (its biggest input cost) should bode well for this fertilizer name. In
essence, the stock is a pure nitrogen-based fertilizer pricing play. Given our favorable
outlook on agricultural stocks, we think the stock should do well in the medium term.
Group: Others (3)

Name: Altria Group (MO)
Yield: 6.1%
Description: Altria Group is a tobacco company with operations in the U.S. Through its
Philip Morris USA, U.S. Smokeless Tobacco Company, and John Middleton
subsidiaries, it sells cigarettes, smokeless tobacco, and cigars. Its brands include
Marlboro, Copenhagen, Skoal and Black & Mild. The company also owns Ste. Michelle
Wine Estates and a stake in brewer SABMiller.
BMR Quick Take: Tobacco is a slowly dying industry in the U.S., with volume
continuing to shrink, but Altria has been able to continue to growth through price hikes.
The company and industry face longer-term headwinds, but the stock is a solid "Hold"
and can be accumulated on weakness.


Name: World Wrestling Entertainment (WWE)

Yield: 10.4%
Description: WWE is the home of the world's most popular wrestling "league." The
company has evolved into a unique entity that's difficult to classify. WWE has used pay-
per-view (PPV), broadcast TV, live events, on-demand, and DVD sales to meld a sort of
self-contained universe of sports and soap opera. It plays out at live events and on TV
each week, with character story lines advancing on top-rated shows, then, as the
company says, culminating or changing direction in its monthly pay-per-view events.
BMR Quick Take: A weak economy and increased competition, including from mixed
martial arts (MMA) leagues such as the UFC (Ultimate Fight Championship) have
sapped the growth out of the WWE. However, the controlling McMahon family looks
dedicated to the dividend at this time even though it is likely to outstrip cash flow in
2010.
Name: Cherokee Corp (CHKE)

Yield: 7.6%
Description: Cherokee is a licensor of a variety of apparel brands to major retailers. It

markets and directly licenses brands and trademarks such as Cherokee, Sideout,
Sideout Sport, Carole Little, CLII, Saint Tropez-West, Chorus Line, All That Jazz, and
Molly Malloy, to retailing partners, usually in exclusive regional relationships.
It has a strategic relationship with Target (TGT) that gives the retailer the exclusive right
in the U.S. to use the Cherokee trademarks in various categories of merchandise. The
company also has deals with Wal-Mart (WMT); TJX Companies (TJX), operator of the
TJ Maxx and Marshall's stores; Tessco Plc in Britain, Ireland, and Central Europe;
Canada's Zellers; South Africa's Pick 'n Pay; and others around the world.
The way the business works is that the retailer licenses the brand name from Cherokee,
but the store owner has the responsibility for sourcing, designing, and producing the
actual product. Cherokee derives revenue based on a percentage of sales.
BMR Quick Take: While Cherokee has a low-cost business model, nice dividend, and
no debt, its distribution has continued to outstrip its cash flow, slowly dwindling its cash
position. Meanwhile, 2010 results have been below 2009 levels despite what should be
easy comparisons. As such, we'd stay on the sidelines.


Indie Research
254 Witherspoon
Princeton, NJ 08540
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High Yield Report

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Bull Market’s 2011 High Yield Stock Report

Name (ticker) Opening Closing Dividends 1-year Total

TICC (TICC) $5.80 $10.65 $0.72 96.0%

StoneMor $18.00 $28.93 $2.23 73.1%

Pioneer $20.14 $28.29 $2.00 50.4%

B&G Foods $8.51 $12.53 $0.51 53.2%

Enterprise $29.73 $43.02 $2.286 52.4%

NuStar Energy $51.95 $67.34 $4.27 37.8%

Philip Morris $49.82 $58.77 $2.38 22.7%

Microchip $27.77 $33.76 $1.37 26.5%

Valley National $12.52* $12.79 $0.541 6.5%

Verizon (VZ) $32.70 $32.39 $4.08** 11.5%

2011 Picks (in alphabetical order):

Associated Estates Realty (AEC)

Energy Transfer Partners (ETP)

Exterann Partners (EXLP)

Fly Lease International (FLY)

Medical Property Trusts (MPW)

PennantPark Investments (PNNT)

Philip Morris International (PM)

Niska Gas Storage (NKA)

Teekay LNG (TGP)

Safe Bulkers (SB)

Year Paid: 2010 2009 2008 2007 2006

Dividend: $0.68 $0.68 $0.68 $0.68 $0.68

Structure: Real Estate Investment Trust

Consistent dividend payments.

Most-Recent Earnings: Funds from operations (FFO) climbed to $7.8 million, or 24

# Insider Value($M) % Outstanding

2 FMR Corp $26.1 5.8%

3 JP Morgan Chase $23.4 5.2%

4 ING Clarion $21.7 4.8%

5 Adelante Capital $19.4 4.3%

Thomson/First Call Analyst Ratings:

Energy Transfer Partners

Ticker Symbol: ETP

Year Paid: 2010 2009 2008 2007 2006

Dividend: $3.576 $3.576 $3.782 $3.188 $2.558

Structure: Master Limited Partnership

Most-Recent Earnings: Energy Transfer reported that Q3 adjusted EBITDA totaled

# Insider Value($M) % Outstanding

Thomson/First Call Analyst Ratings:

Ticker Symbol: EXLP

Year Paid: 2010 2009 2008 2007 2006

Dividend: $1.857 $1.852 $1.738 $1.378 N/A

Structure: Master Limited Partnership (MLP)

Consistent and rising dividend payments.

Other Recent News: None

# Insider Value($M) % Outstanding

Royce & $11.0 2.8%

3 US Bancorp $7.3 1.8%

Fiduciary Asset Mgt $4.9 1.2%

5 Morgan Stanley $4.1 1.0%

Thomson/First Call Analyst Ratings:

Analyst Quote: "Gas production from unconventional plays continues to constitute a

Fly Leasing Limited

Year Paid: 2010 2009 2008 2007 2006

Dividend: $0.80 $0.80 $2.00 N/A N/A

Structure: Limited Company

Has a geographically diverse customer base, with no customers representing

# Insider Value($M) % Outstanding

Thomson/First Call Analyst Ratings:

Medical Property Trusts