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CBRE GLOBAL INVESTORS

CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers providing real estate and infrastructure investment solutions to over 500 clients worldwide.

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CBRE Global Investors is the investment management division of CBRE Group, Inc. the world’s premier commercial real estate services and investment firm.  The company’s shares trade on the New York Stock Exchange under the symbol “CBRE.”

REAL ESTATE SERVICES
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Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

Week Thoughts: Midstream Bounce Faded

It was an up and down week for midstream, but overall positive vs. last week, helped by a huge day Monday.  The Supreme Court ruling in favor of pipeline development across the Appalachian Trail seemed to help midstream stocks broadly on Monday.  Then midstream stocks struggled the rest of the week, subject to the whims of the market being whipped around by unemployment claims and Apple store closings. 

The AMZ finished down each day after Monday.  There were green shoots early on a few of those days, and some late fades, including a big one Friday.  The AMNA is flat month to date and seems to have stabilized after its huge bounce off the bottom, so from here it feels like the broad macro will drive midstream stock outcomes until earnings season or a big sector-specific strategic announcement.

For the week overall, midstream stock performance was on par with the S&P 500 and well ahead of other yield-oriented equities like utilities and REITs.  The market feels rudderless overall, with headlines and day traders driving big moves in both directions.  Oil prices flirted with $40/bbl again this week but closed below that key level.  There were no more surprise equity offerings, but the debt capital markets remain wide open for midstream stocks.

Another MLP Tombstone

Simplification and corporatization continued this week with the closing of the EQM merger with ETRN.  There are now just 30 K-1-issuing MLPs with midstream assets and more than $250mm in market cap left.  That 30 includes the following 6 MLPs that aren’t considered midstream MLPs per Alerian (SUN, GLP, CAPL, EVA, WLKP and USAC).  Traditional MLPs are fading away.

EQM went public in June 2012 at $20/unit and a 7% yield.  For the first 5 years after IPO, EQM raised its distribution at an annual rate of 24%, among the highest in the sector.  With Marcellus natural gas production growing like a weed, and with its drop-down backlog, EQM was a darling for several years, rallying to more than $100/unit at its peak in June 2014.  Its general partner (EQGP) went public in May 2015. 

The combination of (1) the demise of the MLP capital markets, (2) extremely low natural gas prices, and (3) the albatross that the Mountain Valley Pipeline pressured EQM’s share price, which dropped below $8/unit in March before recovering to around $20/unit at closing.  It was an MLP built for healthy capital markets and enthusiasm for large development projects.  The assets live on in its corporate form with ETRN, but the original business model is long gone.

Winners & Losers

MLPs

In a bounce back week for midstream, several MLPs posted 10%+ returns, led by PBFX and WES.  The list of biggest losers included some of the best performers from last week and generally names not included in major MLP ETFs.

YTD, three MLPs are positive overall, and CQP reclaimed the top spot from EVA.  GLP replaced CEQP in the bottom 5, which was otherwise little changed.

Midstream Corporations

ETRN was a big winner early this week, rallying hard on the positive SCOTUS ruling related to the Appalachian Trail, but then faded late in the week and AM ended up with the best performance in this group.  Other natural gas names LNG and WMB outperformed.  TRGP likewise rallied on the positive commodity move.

AM’s outperformance continues, with another week in the top 5.  LNG likewise repeated in the top 5.  ENLC and PAGP were underperformers again this week.  On the YTD leaderboard, TRGP climbed a few spots in the bottom 5, while AM moved into 1st place overall in the top 5, just ahead of HESM.

Canadian Midstream

Strong showing by Canadian midstream this week, especially among the smaller names.  Gibson led the group, while Keyera and Pembina were also 5%+ gainers, all likely benefiting from exposure at the big energy conference this week and from stronger commodity prices.

Last week’s winners and losers chart was basically the opposite of this week, with the biggest names going from best to worst performing stocks, although Gibson outperformed in both weeks.  On the YTD leaderboard, TRP remains in the lead, while Gibson replaced ENB in the top spot.

News of the (Midstream) World

Capital Markets

  • Cheniere Energy (LNG) announced $2.5bn three-year delayed draw Senior Secured Term Loan (press release)
    • Facility to be used to repay existing 11% convertible senior secured notes due 2025 and repay and/or repurchase 4.875% convertible PIK notes due 2021
  • Equitrans Midstream Corp (ETRN) priced $1.6bn of senior notes (press release), including:
    • $700mm of 6.00% senior notes due 2025
    • $900mm of 6.50% senior notes due 2027
  • DCP Midstream (DCP) priced $500mm of 5.625% senior notes due 2027 (press release)
    • Deal upsized from $400mm
  • Enviva (EVA) announced $200mm private placement (see below)

M&A / Growth Projects

  • Williams (WMB) announced tieback agreement with LLOG Exploration Offshore to provide offshore natural gas natural gas and oil gathering and production handling services for the Taggart development at WMB’s Devils Tower Spar (press release)
  • Enviva Partners (EVA) announced “transformative acquisitions”, $200mm private placement of equity and increased 2020 guidance (press release)
    • EVA to acquire a wood pellet production plant with associated export terminal in Georgia from Innogy SE
    • EVA to acquire the wood pellet production facility in South Carolina from its sponsor
    • Total investment of $375mm expected to generate $56-60mm for a 6.7x EBITDA multiple at the midpoint
    • $200mm private placement of common units is being anchored by ValueAct Spring Fund

Other

  • Supreme Court overturned decision by the U.S. Court of Appeals for the 4th Circuit related to the Appalachian Trail, clearing the way for the long-delayed Atlantic Coast Pipeline project (Washington Post)
    • Also a positive for Mountain Valley Pipeline being developed by ETRN
    • SCOTUS ruled 7-2 that the U.S. Forest Service has authority to grant the pipeline right of way under the Appalachian Trail