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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.”
March 1, 2015
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After a positive week last week, MLPs declined 1.4% this week. The MLP Index has been unable to string together two consecutive positive weeks in more than 2 months. The market was (understandably) unable to soak up $1.7bn of new MLP equity this week without MLP prices declining. It didn’t help that PAA, which represents 7.5% of the index, was down 3.1% this week after executing a $1.1bn equity offering (its first marketed equity offering in more than 3 years).
MLP trading lately has reminded me of a toddler who is just beginning to try to walk. He takes a step, teeters, takes another step, loses his balance and falls on his butt. Ultimately he either learns to walk or breaks down crying after one too many failed attempts.
Similarly, MLPs trade up, seem to be getting momentum, but quickly lose their balance and fall back again. The challenge for MLPs is that the floor keeps tilting back and forth with changes in commodity prices, de-stabilizing equity offerings, and other risks like producer distress. Ultimately, with time, MLPs should emerge from this lengthy correction with reset expectations, positioned to produce attractive total returns off a lower base.
Monthly Checkup
Despite ongoing choppiness for MLP stock prices, MLPs did manage to post positive monthly performance, breaking the longest streak of negative months (5) in the 20 year history of the MLP Index. Despite the positive month, MLPs remain 14.6% below their end-of-August peak. MLPs are still down so far in 2015, but with another positive month, MLPs may still close 1Q in positive territory.
Winners & Losers
RRMS, CMLP and DKL all reported 4Q results this week that pleased the market. RRMS’s beat and 3 year top tier distribution guidance sent it 8.7% higher on Friday. CMLP rebounded this week after resetting expectations for growth, but also calming the market with respect to maintaining its distribution. DKL put up another strong quarter of results and reiterated its almost top tier growth trajectory.
On the downside, TEP’s equity offering and GP IPO filing sent its stock price reeling. CNNX re-defined top tier growth a bit lower than we did here the last two weeks, and that was not well received by the market on Thursday and Friday, despite very strong quarterly results.
TEP and CMLP flip flopped vs. last week, but no other repeats in a very inconsistent MLP market so far in 2015.
For the year so far, FISH dropped from first last week to off the board this week, replaced by CLMT, EROC and LINE. On the downside, TOO crept up from the bottom spot to 3rd worst, while GMLP replaced fellow shipping MLP TGP in the bottom 5 this week, after falling 8 out of the last 9 days.
News of the (MLP) World
Lots of capital markets action this week, including more than $6bn of bonds and $1.7bn of equity. That’s a lot of paper for an MLP market that is still teetering and lacks the trading volume and daily flows from retail investors that provided tailwinds to the sector the last few years. It’s now an all-out war to attract investors, now that the overall pie isn’t growing quite so fast.
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M&A / Growth Projects