Sitio Royalties Corp. (STR) Update - June 13

[dan_s]

STR will be replacing FLMN in our High Yield Income Portfolio. I've not had time to update my forecast recently, but it appears the annualize dividend yield should be over 10%.
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Desert Peak Minerals and Falcon Minerals Corporation Announce Completion of Merger

Combined Company Rebranded Sitio Royalties Corp. (NASDAQ: STR)

Sitio Poised to Become Leading Oil-Weighted Mineral and Royalty Interest Consolidator

DENVER, June 07, 2022--(BUSINESS WIRE)--Desert Peak Minerals ("Desert Peak") and Falcon Minerals Corporation ("Falcon") today announced the successful completion of their merger, creating Sitio Royalties Corp. (Nasdaq: STR) (the "Company" or "Sitio"), a premier, shareholder returns-driven company focused on large-scale consolidation of high-quality oil & gas mineral and royalty interests across diversified operators.

With a proven track record of completing large, accretive acquisitions in the Permian Basin, Sitio is poised to become a top consolidator in the space. Guided by a disciplined financial philosophy and strong balance sheet, Sitio will focus on maximizing value for all stakeholders and returning significant cash to shareholders.

On June 3, 2022, prior to the consummation of the merger, Falcon effected a four-to-one reverse stock split of Falcon’s Class A common stock and Class C common stock and formally rebranded as Sitio Royalties Corp. The Company’s Class A common stock and warrants will initially continue trading on Nasdaq under the ticker symbols "STR" and "STRDW." In connection with the closing of the merger, the Company entered into a new credit facility with a $300 million borrowing base.

In accordance with the terms of the merger agreement, Desert Peak became a subsidiary of Falcon’s operating partnership ("OpCo"). Desert Peak’s equity holders received 61,905,339 shares of the Company’s Class C common stock and a corresponding number of common units representing limited partner interests in OpCo.

Chris Conoscenti, CEO of Sitio, said: "Sitio is guided by its commitments to best-in-class leadership and governance standards, capital discipline and a thoughtful approach to value-maximizing M&A. Sitio’s distinguished profile as a leading consolidator in the minerals and royalties space will only continue to strengthen over time with the execution of our proven strategy, focusing on large-scale accretive acquisitions across diversified operators."

Noam Lockshin, Chairman of Sitio’s Board of Directors, said: "In line with Kimmeridge’s operating philosophy, Sitio has already adopted a best-in-class governance model that is structured to drive long-term shareholder returns and strong alignment with all its stakeholders. When leadership and directors are incentivized to drive outperformance and to optimize shareholder returns, as they are at Sitio, everyone wins. We believe this is the backbone of any successful public company, and Sitio is leading the way in this space."

Sitio Senior Leadership Team and Board of Directors

As previously announced, Sitio will be managed by the legacy Desert Peak management team, led by current Chief Executive Officer, Christopher Conoscenti. Noam Lockshin, a Partner at Kimmeridge, Sitio’s largest equity holder, will serve as Chairman of the Board of Directors. The Board comprises seven members with strong independence, diversity and deep expertise across energy, finance and governance: Noam Lockshin, Morris R. Clark, Christopher L. Conoscenti, Alice E. Gould, Allen W. Li, Claire R. Harvey and Steven R. Jones.

Stock Exchange Listing Transfer

As previously announced, the Company plans to transfer the listing of its Class A common stock and warrants from Nasdaq to the New York Stock Exchange ("NYSE") and NYSE American LLC, respectively, on or about June 14, 2022, where the Company’s Class A common stock will retain the same ticker symbol "STR," and the warrants will trade under the new ticker symbol "STR WS." The Company’s Class A common stock and warrants will be delisted from Nasdaq in connection with listing on NYSE and NYSE American LLC.

About Sitio Royalties Corp.

Sitio is a shareholder returns-driven company focused on large-scale consolidation of high-quality oil & gas mineral and royalty interests across premium basins, with a diversified set of top-tier operators. With a clear objective of generating cash flow from operations that can be returned to shareholders and reinvested, Sitio has accumulated over 140,000 net royalty acres ("NRAs," when normalized to a 1/8th royalty equivalent) through the consummation of over 180 acquisitions to date. More information about Sitio, including an updated investor presentation, is available at www.sitio.com.

[dan_s]

Can any of you confirm the total number of STR shares outstanding and fully diluted after the 1 for 4 reverse split?

My guess is ~83.5 million shares outstanding.

[dan_s]

TipRanks: "In the last 3 months, 4 ranked analysts set 12-month price targets for STR. The average price target among the analysts is $33.60. RBC Capital analyst T J Schultz maintained a Hold rating on Sitio Royalties (STR) on June 7 and set a price target of $36.00."

At the time of this post STR was trading at $25.36.

Forward dividend estimate is $2.88/year.

[ajootian]

Dan, I agree that STR now has about 83.5M shares out or maybe 1-2M shares less. On the proforma balance sheets that were included in the proxy statement for the Desert Peak transaction, they show (pg. 77) 11.9M Class A shares and 71.8M shares. At Note G of those statements (see pg. 82), they indicate that these figures were derived by assuming that FLMN would issue the maximum number of shares required by the deal docs, which include an additional 12.6M shares over the 235M shares (pre-split) that would be issued to account for an expected decrease in Desert Peak's debt levels between the time of the deal having been aId when it closed. I can't find any disclosure of how many shares actually got issued at the closing but its probably best to assume that the max possible shares got issued at this point.

It's too bad that STR didn't just announce how many shares are now out post-closing.

[dan_s]

Thanks. Using 83.5 million shares my valuation s/b ~$30/share.
Their 2Q 10-Q should clear things up.

[dan_s]

Found it:
Outstanding shares are Class A + Class C = 83,840,831

The Company’s stockholders immediately prior to the closing of the Merger Transactions (the “Closing”) continue to hold their shares of Class A Common Stock, subject to the Reverse Stock Split. As a result of the Merger Transactions, immediately following the Closing, (a) Chambers DPM HoldCo, LLC, a Delaware limited liability company (“Chambers”), and KMF DPM HoldCo, LLC, a Delaware limited liability company (“KMF” and, together with Chambers, “Kimmeridge”), together own approximately 43.5% of the issued and outstanding Common Stock, (b) Source Energy Leasehold, LP, a Delaware limited partnership (“Source”), and Permian Mineral Acquisitions, LP, a Delaware limited partnership (“Permian” and, together with Source, the “Source Stockholders”), together own approximately 15.4% of the issued and outstanding Common Stock, (c) Rock Ridge Royalty Company, LLC, a Delaware limited liability company (“Rock Ridge”), and Royal Resources L.P., a Delaware limited partnership (“Royal Resources” and, together with Rock Ridge, “Blackstone”), together own approximately 25.0% of the issued and outstanding Common Stock and (d) the Company’s remaining stockholders own approximately 16.1% of the issued and outstanding Common Stock. Following the Merger Transactions, including the Reverse Stock Split, there were 12,088,546 shares of Class A Common Stock outstanding, 71,752,285 shares of Class C Common Stock outstanding and 5,312,499 shares of Class A Common Stock issuable upon exercise of outstanding Warrants. There was no change to the number of authorized shares of Common Stock.