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December 16, 2011
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MLPs finished flat and near the highs of the week simultaneously, again serving as a safe haven in a difficult market for equities, treasury strength and dropping yields probably helped MLPs outperform. The theme of the second half of the year (and a previous title for one of my weekly posts) fits this week as well: flat can feel pretty great. With the equity hose likely shut off for the remainder of the year, seems like a relief rally for MLPs may happen next week just to celebrate a week without drowning in paper.
The broader market (S&P 500) was off this week 2.8%, after 2 straight slightly positive days to finish the week. There were some positive signs out of Europe and yields dropped for European bonds. Domestically, initial unemployment claims fell to 366k, lowest since May 2008 (people have stopped firing people, maybe no one left to fire?), refinancings are rising (according to MBA), and treasury auctions saw strong demand. The Fed and the European Central Bank did not hit the print button this week, which may have had something to do with the big story of the week: gold’s break below its 200 day average. GLD finished the week down 6.7% after a rally Friday of more than 3%.
This week was the second $1.0 billion plus equity week in a row, with MWE’s massive equity offering accounting for more than half of the total equity raised. It was the busiest combined two weeks of this record year for MLP equity issuance. Its worth noting that each of the last two weeks was smaller than the most active week of the quarter, which occurred in early November after the market bounced hard in October and management teams seemed to be tripping over themselves to get equity done before stocks dropped again.
MWE was first out of the gates this week, with what was the MLP’s second follow-on equity deal of the quarter and fourth overall in 2011. In total, MWE has raised $1.1 billion in equity in 2011 including $804 million this quarter. MWE is now tied with ETP for the most equity offerings since 2008 with 8 deals (although MWE is 6th in total gross proceeds during that time). There seems to be no end to the demand for MWE units, which have traded up approximately 25% so far this year. Contrast that to the other 2 issuers who have sold more than $1.0 billion in equity in 2011: ETP (-13%) and PAA (+4.8%).
Winners and Losers
PSE was the unfortunate victim of timing this week, launching its equity deal alongside MWE’s, and was hammered this week, down 13.7%. Both deals run by the same bookrunner, Citigroup, so PSE had even more of an opportunity to get lost in the shuffle, particularly given that it was a partial primary / partial secondary issuance. There was no runaway winner this week, but OKS finished Friday up 3.8%, helping it lead the way for the week. NRGM finished its debut up 3.8%, recovering strong after slipping below issue price for a few hours Friday morning.
The losing MLPs this week were small caps with high commodity price exposure. Small caps were mostly lower on the week (42 out of the 68 MLPs I track were down), but most of the MLPs in the Alerian (larger caps) had positive weeks.
One more note before the news summary: I have written way too much about MLP equity issuance of late. The next few weeks, I’ll be writing on broader MLP topics, including the tax Q&A with Tim Fenn as promised, a few MLP Basics posts, something about weather (it hasn’t snowed at all in Boston in November and December, not great for propane and heating oil MLPs or natural gas prices), and of course a wrap up of 2011 and thoughts on 2012 trends to expect.
News of the (MLP) World:
Markwest Announces Acquisition of Remainder of 49% Interest in Liberty Joint Venture in Marcellus Shale, and does massive 10.0 million unit equity issuance in 1-day book build
Cheniere Energy Partners ($CQP) announces 20-Year LNG sale and purchase agreement (press release)
Inergy Midstream ($NRGM) prices IPO at $17.00 per unit, below the range, 15% off of the midpoint of the filing range of $20.00 per unit (press release)
Mid-Con Energy Partners ($MCEP) prices IPO at $18.00 per unit, below the filing range and 10% below midpoint price of $20.00 per unit
Western Gas ($WES) announces $483 million drop down acquisition from Anadarko ($APC) of gathering and processing assets in southwestern Wyoming (press release)
Pioneer Southwest Energy Partners ($PSE) prices 4.4 million unit equity offering at $29.20 for $75.9 million in gross primary proceeds, and $52.6 million in proceeds to selling unitholder
Kinder Morgan (KMP) announces another rounding error project (press release)
Crestwood Midstream ($CMLP) to enter the Marcellus with help of its GP sponsor First Reserve (press release)
Williams Partners (WPZ) filed an application with FERC (Federal Energy Regulatory Committee) new project (press release)
Disclosure: The information in this article is not meant to be financial advice, we are not your financial advisor and I am posting my comments for informational purposes only.