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Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

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State of MLPGuy and 2019 Outlook

As this blog enters its 10th year of existence, let me provide an update on where we plan to go with this.  In 2019, nothing will change with regards to the timely weekly write-ups you all love.  Occasionally, however, I will sprinkle in a mid-week post that might include promotional language related to my day job at CBRE Clarion.  In addition to providing weekly free analysis on the MLP sector through my blog, I manage a midstream investment strategy and I contribute to the global team that manages a global infrastructure investment strategy on behalf of paying clients.

CBRE Clarion’s Capabilities

CBRE Clarion manages a midstream strategy and an MLP strategy on behalf of institutional investors that have both produced returns in excess of their respective benchmarks since inception.

We currently do not have a midstream or MLP solution for individual investors.  CBRE Clarion does manage a global infrastructure investment strategy available to individual investors via a mutual fund for which we serve as the sub-adviser.  That fund typically has exposure to the midstream sector, which makes up nearly 20% of the global listed infrastructure universe of stocks.

Recommended Strategy

As someone who looks globally at the infrastructure asset class and allocates capital across midstream, utilities, transportation and communication sectors, we believe we have some insight into where you should allocate your investment dollar.

For those interested in stable income, consistent total return with lower volatility (and lower yield), we recommend the overall infrastructure asset class and specifically our global listed infrastructure strategy.  For those who want exposure to one infrastructure sector that has potential for higher return, but will almost certainly have higher volatility (and higher yield), we recommend investing in a North American midstream strategy like ours.

2019 Midstream Outlook and Resolutions

We have a positive outlook for midstream in 2019 with a total return expectation of more than 20% based on fundamental tailwinds, projects going into service, simplified and healthier financial structures driving a positive cash flow per share growth outlook.  I expect more stability than we’ve seen in recent years (a low bar).  Stability of distributions, stability of tax and permitting rules, stability of unit count and unit prices, stability of benchmark constituents, stability of business plans.  At the same time, the broad equity market and oil prices don’t look like they will be stable in 2019, which could counter some of the tailwinds.

Midstream companies can’t control what’s happening in the macro, but there are many things they can control.   If midstream companies had resolutions for 2019, they would probably be like those you often hear of this time of year.

  • “Make more, spend less”
    • Obvious, but midstream needs to be extra careful with deploying capital in this new normal of no equity capital markets
  • “Lose weight”
    • More asset sales, shrink to grow now that IDR incentives to grow constantly have been removed
  • “Do more networking, make connections”
    • More joint ventures and mergers would make the sector more efficient overall, reducing competition, increasing bargaining power
  • “Read more, journal more”
    • Listen to investors calling for more disclosure on project returns and operations
    • Provide more disclosure on project returns and operations

Poll Questions

I’m interested in what you think are the biggest positive and negative factors working for and against midstream this year.

Biggest headwind facing midstream in 2019?

  • Negative oil and energy sentiment? (60%)
  • Too much leverage (21%)
  • Lingering IDR and structural issues (DCP, APU, PSXP, SHLX) (11%)
  • Too much capital expenditures (8%)

Total Voters: 324

Biggest midstream tailwind in 2019?

  • Valuation and yield you can (probably) count on (45%)
  • Cleaner structures with fewer IDRs (and self-funding) (31%)
  • Visible cash flow per share growth (15%)
  • Private equity take-outs of midstream companies/assets (9%)

Total Voters: 333

Key Themes

On the road to that positive outlook, there are challenges and subplots we’ll keep out eyes on.  Below are the key themes I’m paying attention to in 2019, but I’m sure others will emerge.

  • Lingering IDR structures (DCP, PSXP, SHLX, NBLX)
  • Lingering sponsor issues (ENBL, ANDX, TCP)
  • Lingering regulatory issues in Colorado and for gas pipeline projects
  • Lingering coverage and leverage issues (TRGP, SEMG, APU)
  • Lingering funding issues (SMLP, OKE, TRGP)
  • Corporate conversions
  • Creeping capex
  • Asset sales (2018 was more than $20bn)
  • Mergers among midstream companies and MLPs
  • Large scale crude exports (via VLCCs)
  • LNG project commercialization
  • Marcellus gas sentiment reversal
  • Water infrastructure needs



The CBRE Clarion Midstream Strategy has an inception date of January 31, 2018. Benchmark performance is the Alerian Midstream Energy Select Index. The CBRE MLP Strategy has an inception date of August 1, 2012.  Benchmark performance is the Alerian MLP Index. Both benchmarks are unmanaged float-adjusted capitalization-weighted indexes which consist of prominent companies and MLPs engaged in midstream activities.

Dividend yields fluctuate and are not necessarily indicative of present or future investment performance. Past performance is no guarantee of future results.