Like the utilities it serves, NRG Yield is powered up.
NRG Yield (
) was formed by major U.S. independent power producer NRG Energy
)to own and operate a portfolio of long-term contracted renewable
energy, conventional generation facilities and thermal
infrastructure assets in the U.S., and pay regular dividends to
As an independent power producer, NRG Yield sells power to
utilities at market-based rates. Its contracted generation
portfolio includes three natural gas or dual-fired facilities,
eight utility-scale solar and wind generation facilities and two
portfolios of distributed solar facilities. It also owns thermal
NRG Yield is the fourth largest company by market cap in IBD's
No. 1 Energy-Alternative/Other industry group, afterCalpine (
),Vestas Wind (
) andBrookfield Renewable Energy (
NRG Energy has one of the largest power-generation portfolios
in the U.S. It retains a 65.5% economic and voting interest in
"NRG Yield believes its base of operations and relationship
with NRG provide a platform in the power generation and thermal
sectors for strategic growth through cash accretive and tax
advantaged acquisitions complementary to its existing portfolio,"
the company said in an SEC filing.
Fueled by the potential dropdown of assets from acquisitions
made by NRG Energy as well as opportunities to make its own
third-party buys, NRG Yield is primed for solid growth and
Analysts surveyed by Thomson Reuters expect full-year 2014
earnings to rise 82% to $1.04 a share. They see a 38% jump in
Investors have taken notice: Since going public last July at
22, NRG Yield's stock has rocketed 93% and is trading around
"Its prospects are very strong," said Citi Research analyst
"We said when we launched coverage one of the biggest
attributes of NRG Yield is NRG Energy," Pourreza said, adding
that NRG Energy has "got a history of making acquisitions -- this
entire business is about making acquisitions and dropping them
down into NRG Yield."
NRG Energy has granted its offspring a right of first offer to
acquire six of its owned power generating assets, "if and to the
extent NRG elects to sell any of these assets prior to July
2018," said the company in an SEC filing.
In addition, NRG Yield has the opportunity to gain from NRG's
acquisition of the assets of Edison Mission Energy, which closed
NRG Energy paid $2.635 billion, excluding transaction
adjustments for cash and working capital, in the transaction. EME
companies own, operate and lease a portfolio consisting of more
than 40 electric generating facilities that are powered by wind,
natural gas and coal, as well as an energy marketing and trading
In announcing the deal last October, NRG Energy said the buy
"significantly expands (the) pipeline of assets available to
drive growth at NRG Yield through future drop-downs with 1,600
megawatts of long-term, fully contracted wind and natural gas
NRG Energy has said its near-term plan is to offer NRG Yield
certain EME assets it believes fit within its asset portfolio,
says a company filing with the SEC.
"The Edison Mission acquisition could eventually be used for a
dropdown into NRG Yield," said analyst Pourreza.
Meanwhile, on Dec. 31, NYLD closed on its first acquisition
outside its relationship with NRG with the purchase of privately
held Energy Systems Co. of Omaha, Neb., for $120 million in
Energy Systems serves data center, commercial, educational,
hospital, cultural and governmental space in Omaha with a
weighted average remaining life of customer contracts over 11
The Omaha system acquired by NRG Yield is known as one of the
"premier assets in the U.S. district energy industry," the
"The acquisition of ESC demonstrates NRG Yield's ability to
successfully compete for attractive contracted energy assets
available from third parties," said CEO David Crane in a
statement announcing the deal.
"In addition to contributing to our objective of sustainable
and visible dividend growth for our investors, ESC provides us
another important opportunity to supply the energy needs of
business and other institutional customers directly and in a
manner that is not entirely grid dependent," he said.
NRG Yield said the buy would be "immediately accretive" to
2014 cash flow available for distribution per share by
"It's also consistent with NRG Yield's strategy of acquiring
long-term contracted assets that favorably complement its
existing portfolio and offer long-term growth opportunities," the
company said in a statement.
The buyout provides "geographic diversification" and helps NRG
Yield boost its thermal infrastructure platform, it added.
Primarily due to the buyout, NRG Yield raised its 2014 adjusted
EBITDA guidance to $292 million from $285 million, and cash
available for distribution, or CAFD, guidance to $115 million
from $103 million.
EBITDA represents net income before interest including loss on
debt extinguishment, taxes, depreciation and amortization.
Adjusted EBITDA represents EBITDA adjusted for market-to-market
gains or losses, asset write-offs and impairments, and factors
the company doesn't consider indicative of future operating
NRG Yield also has the opportunity to gain additional assets
from NRG Energy this year. In the 2013 third quarter, NRG Energy
notified NRG Yield of its intention to offer four NRG Energy
right of first refusal assets in 2014.
In this year's first quarter, NRG began discussions with NRG
Yield on three of those assets, all of which are based in
They are TA High Desert, a 20 megawatt solar facility in Los
Angeles County; RE Kansas South, a 20 megawatt solar facility in
Kings County; and El Segundo Energy Center, a 550 megawatt
fast-start natural gas-fired facility in L.A. County.
This past Jan. 30, the company declared a quarterly dividend
on its Class A common stock of 33 cents per share, a 10% increase
over the fourth quarter 2013 initial dividend of 30 cents per
Fourth-quarter revenue rose 105% to $86 million and NRG Yield
earned $1.04 a share, sailing past views, according to Thomson