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January 7, 2018
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It was a great opening week for midstream stocks, or almost any other kind of stock (ex-utilities and REITs). MLPs have traded up for 4 consecutive weeks, the first streak of 4+ positive weeks since April 2016. 4.5% is the best week for MLPs since late last January. MLPs are also 13.9% off the late November bottom. The MLP Index opened with consecutive 2%+ days for just the second time ever (2009 was the other time).
MLPs rallied through a very slow news and capital markets period the last four weeks, and got a big shot in the arm when new buyers showed up with the turn of the calendar, as expected. From here, MLPs will be tested under more challenging conditions. A billion-dollar equity deal and a negative oil day threw cold water on MLP euphoria Friday.
After hitting the reset button, we’re back to the hustle and bustle, back in the daily flow of M&A, project announcements and equity. Another small cap MLP is getting rolled up (with a stealth distribution cut), TEP is still doing bolting on asset acquisitions, large scale midstream companies (OKE, EPD) are finding high-return growth projects to complement their integrated systems, and ETP continues to face setbacks on completion of its backlog of pipeline projects. Also, self-funding doesn’t apply to everyone, especially if you can raise a ton of equity at a 3% discount.
Positive new year fund flows may help the sector’s metabolism for digesting equity issuance, to a point. But if 2018 repeats 2017’s flurry of equity issuance, M&A announcements, expect MLPs to react negatively.
This week was a busy one for the MLP market, but it was also busy one for me and my snow shovel. So, I’m going to sign off until next week before I choke on Duraflame fumes. Stay warm out there.
Poll Question Recap
Just a quick note about the un-surprising results of last week’s poll question. Optimism reigns among readers that 2018 will be a comeback year for MLPs relative to the S&P 500 (78% of respondents), which most of you also think will be positive for the year (76% of respondents). So far so good. Thanks for the clicks, good to be able to gauge sentiment from time to time.
Winners & Losers
APLP led all other MLPs on the sponsor rollup announcement, but there were 4 others with double digit returns this week too. CNNX is now CNXM (and will be reflected as such next week), and the fresh start (plus the fresh acreage dedications) helped it pop on Thursday and finish in the top 5.
The biggest decliner was TEP, despite some small M&A. Friday was bad for stocks like TEP (-3.0%) and SEMG (-6.4%) with oil pipeline assets in the Rockies, probably a result of OKE’s NGL pipeline announcement that makes converting an existing oil pipeline into NGL service perhaps less likely. That may be a stretch when it comes to TEP, but it seemed to the driver for weak action Friday. NGL was somehow immune to this phenomenon, despite significant oil pipeline exposure with Grand Mesa.
General Partners & Midstream Corporations
GPs and corps underperformed the MLP Index as a group this week, and the spread was wider between the winners and losers. OKE was the big winner of the week. Able to raise $1.0bn in fresh equity and end up with a 5% gain on the week. AMGP continued its strong run lately after raising long-term dividend growth outlook higher on tax reform impact. Other producer-sponsored GPs WGP and EQGP were also strong.
On the downside, OKE’s announcement and equity offering seemed to impact some of the weaker stocks in this group. TRGP seemed to be impacted by rotation into OKE as stocks with similar NGL exposure (although fundamentally, OKE’s pipeline shouldn’t impact TRGP operationally in any way). And as discussed above, Friday was rough for the Tallgrass family and SEMG. AROC was the worst performer as the inverse of the APLP announcement. Also, ETE didn’t participate in the rally after more roadblocks on Mariner East pipeline construction.
Canadian Midstream
Canada had a more muted week than the U.S. All the stocks were up, with Gibsons and Enbridge up a bit more, all on no news. For Gibsons it was the second straight 4% week.
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