×
Triangles background
OUR COMPANY AND AFFILIATES
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.

INVESTMENT MANAGEMENT

CBRE Global Investors

CBRE Clarion Securities

CBRE Caledon Capital Management

Trammell Crow Company

MLPguy
CBRE GROUP

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

CBRE

CBRE Blueprint
Our Company and Affiliates

This website uses cookies to improve the user experience. By using our website you consent in accordance with our Cookie Policy. Read More

ACCEPT
Triangles background
Back to Insights

January 9, 2016

Viewed 1023 times

Week Thoughts: Kite Eating Tree Strikes MLPs Again

MLPs started the new year strong on Monday and relatively strong on Tuesday, but faded amid another crushing oil price decline coupled with an epic, coordinated global equity selloff. MLPs declined nearly 10% in two days in an indiscriminate free fall reminiscent of the decline in early December, and finished down 7.7% for the week, despite two 1%+ positive days. This selloff seemed to be caused by oil prices, which seemed to be down due to concerns about China demand slowing due to its collapsing stock market. So, we now have our answer to what MLP prices have to do with the price of tea in China.
Weekly Review_1-8-16
Positive distribution announcements from EPD, GEL and TEP this week were met with fresh selling. Oil hit multi-decade lows, while the broader stock market had its worst opening week forever. Sentiment for equities is souring and volatility is peaking. Fresh blood is flowing on MLP streets already caked in leftover blood from last year. Resolve of MLP investors and management teams is being tested daily.
Over the holidays, I took my kids to see The Peanuts Movie. The movie rehashes many of themes from the classic comic strip and cartoons of my youth, involving Charlie Brown failing but never giving up hope that one day he will succeed. The two classic tropes that come to mind are Lucy pulling the football away from Charlie Brown at the last second and Charlie Brown trying to get his kite to fly. In the comic strip, the kite always ends up in a tree known as the “kite eating tree”. For a brief period this week, as late as Tuesday afternoon, it seemed like MLPs had a little wind at their backs, but again they ended up in the tree.
KiteTree
In the movie version, Charlie Brown eventually flies the kite and gets the girl (spoiler alert), a nice happy ending. A happy ending is still very possible for MLPs, or least a happier one than we’ve had the last 18 months, and there were some positive signs this week if you look close enough.
Themes: Volatility Breeds Creativity
Massive volatility continues as investors sort through the implications of closed capital markets and dire commodity prices for longer than most expected. Ratings agencies are sending shockwaves through the sector’s largest MLPs.
M&A has been slow to materialize, but one transaction from NGL energy highlighted that there may be greater value in some assets embedded within an MLP than in the MLP overall. Private equity stepping in to relieve MLP pressure with asset purchases and GP purchases may not reduce the overall number of MLPs, but the capital infusion is helpful on the margin. It will be interesting to see if other MLPs pursue asset sales to right their broken equities. NGL’s rally is also a reminder that not all MLPs that trade to yields above 25% have to cut their distributions, see 2008 for further evidence of that.
This week also saw the continued theme of sponsor support. TEP issued units back to its sponsor for a drop down, while EPD’s major holders stepped up to buy $100mm worth of units. A well-capitalized sponsor that is willing to provide support in the form of a lower multiple drop-down or by taking back equity can facilitate distribution growth and stability at their MLPs. There continue to be levers to pull for midstream MLPs. MLP management teams and their advisors are creative folks, and I’m sure this is just the beginning of what will be a wild year of creatively engineered transactions.
Winners & Losers
NGL’s 45.6% rally on Friday helped NGL lead all MLPs this week, and CNNX caught a bid to open the year up 9.2%. SXE’s 50.4% collapse after distribution suspension Friday helped it drop to the bottom of the sector. Several other MLPs were down more than 20%, many of them previous distribution cutters (TOO, FELP, NMM). Just 5 days in to the year and the spread between the top and bottom performing MLPs for the year is 80 percentage points.
Top5Bottom5_1-8-16
Top5Bottom5_1-8-16_chart
General Partner Holdings Companies
GPs were down with the MLPs this week, but outperformed slightly based on median. ETE and WMB selloffs were more dramatic with each down 20%+. Energy Transfer complex-wide leverage concerns, uncertainty about GP support, and noise around the merger seem to be disproportionately weighing on all MLPs affiliated with Energy Transfer, which is a lot of MLPs! I expect management is working on providing investors clarity on distributions and leverage, perhaps with IDR waivers, an asset sale or some other lever included.
Top5Bottom5GPs_1-8-16
Top5Bottom5GPs_1-8-16_chart
News of the (MLP) World
News-of-the-World
Equity

  • Enterprise Products (EPD) announced that its affiliate EPCO acquired 3.8mm units in a private placement via EPD’s ATM program, raising $100mm in gross proceeds (press release)
    • EPCO has committed to investing $200mm total in the first quarter of 2016

M&A / Growth Projects

  • NGL Energy (NGL) announced the sale of the GP interest and incentive distribution rights of TLP to private equity firm ArcLight Capital for $350mm in cash (press release)
    • NGL expects to close the transaction in January, and will use the proceeds to reduce borrowings
    • NGL does not anticipate needed additional equity or debt in the next 18 months
    • NGL says the sale will result in net increase in EBITDA of $12mm, consisting of cost savings and revenue enhancements of $20mm and lost IDR cash flow of $7.6mm
    • NGL had only acquired TLP stake in July 2014, and the implied value of the GP back then was around $50mm
    • There are not too many things in the energy sector that have produced a return of 6.5x since July 2014
    • Arclight has been active in the MLP space over the years, and owns a stake in the general partner of American Midstream (AMID)
  • Tallgrass Energy (TEP) announced acquisition of an additional 31.3% interest in Tallgass Pony Express Pipeline from Tallgrass Development (TDEV) for $743.6mm (press release)
    • Consideration will be a combination of $475mm in cash (borrowings) and 6.518mm common units issued to TDEV
    • As part of the transaction, TDEV granted TEP a call option to repurchase the 6.518 units at $42.50 at any point over the next 18 months
    • This innovative call option will allow TEP to pursue a marketed equity offering in the future once the market opens again
    • TEP announced expectations to grow distribution by at least $0.06/unit in 1Q (an additional 9.4% on top of 6.7% quarterly increase announced in December for 4Q)
    • TEP also affirmed 20% annual distribution growth through 2017
  • CrossAmerica (CAPL) announced acquisition of 31 retail locations in Wisconsin and Minnesota from SSG Corporation for $48.5mm (press release)
  • Westlake Chemical Partners (WLKP) announced project to expand Ethylene capacity at Westlake Chemical Opco’s facility in Calvert City, Kentucky (press release)
    • WLKP expects the project to help WLKP to continue low double-digit rate of annual distribution increases
  • Green Plains Partners (GPP) announced drop down acquisition of the storage and transportation assets of two ethanol production facilities owned by Green Plains Inc for $62.5mm (press release)
    • The assets are expected to generate $7.7mm in EBITDA over the next 12 months (8.1x implied multiple)

Distribution

  • Tallgrass Energy (TEP) – announced at least $0.06 increase (+9.4% quarter over quarter, after 6.7% increase in 4Q) for 1Q, re-affirmed 20% annual distribution growth through 2017
  • Genesis Energy (GEL) – 4Q distribution increase of 2.3% over 3Q, 10% annual increase
  • Enterprise Products (EPD) – 4Q distribution increase of 1.3%, 5.2% annual increase
    • EPD also announced 2016 distribution guidance of 5.2%
  • Spectra Energy (SE) – 4Q dividend increase of 9.4%, 14% annual increase
  • Southcross suspended distributions
RELATED CONTENT
No posts matching your criteria
MLPguy Post
Week Thoughts: Midstream Relieves Itself Midstream and MLPs ripped this week, continuing the rebound that began in the middle of last week. A benign broad market backdrop allowed midstream stocks and MLPs to rally on their own merits this week.
MLPguy Post
Week Thoughts: Midstream Trypophobia Midstream stocks took cues from the broad market this week, drifting lower early in the week before mounting a comeback later in the week, including a big Friday after the robust jobs report.
MLPguy Post
Decadence to Decay: a Decade of MLPguy As of this week, I have now been publishing thoughts on MLPs at MLPguy.com for more than 10 years. The usual end of the year reflection in the media and among investors will be magnified arbitrarily this year by the end of the decade.
MLPguy Post
Midstream Week Thoughts: Groundhog Day for Thanksgiving Monday was positive for midstream, capping a rare 3-day run of positive performance. But apathy reigned the rest of the week, as Midstream and MLPs traded down the rest of the holiday-shortened week.
MLPguy Post
Week Thoughts: Midstream Flattish, Finishes on Positive Note Midstream was almost positive week over week, but had to settle for two days of positive performance in a row.
MLPguy Post
Week Thoughts: Mariner Makes Midstream Mixed Midstream stocks were mixed across categories, with Canadian midstream outperformance offset by MLP weakness, but overall finished positive for the week, helped by broad market strength and income stock strength.
MLPguy Post
Week Thoughts: Midstream Captures More Downside The slow bleed in midstream continued this week. MLPs again lagged broader the Midstream Index (AMNA), because of Canadian midstream and a few large U.S. corporations. Higher commodity prices and strong broader equity market trading weren’t enough to get midstream moving higher...
MLPguy Post
Week Thoughts: Midstream Earnings Hit, Stocks Miss Midstream and MLPs were slight underperformers among energy stocks (XOP and XLE were largely flat) and underperformed general equities (as measured by S&P 500), which rallied 1.5%. Earnings, ex-dates for distributions and month-end strangeness whipped things around a bit in between a basically flat week.
MLPguy Post
Week Thoughts: MLPs Less Travelled Midstream basically kept pace with the broader market this week, while MLPs underperformed, again. Oil prices and broader equities were supportive, but that wasn’t enough to get MLPs moving ahead of EPD results Monday to kick off the meat of 3Q reporting season.
MLPguy Post
Week Thoughts: Midstream Inaction Quiet week in the stock market this week, which translated into a quiet week for midstream as well. The AMNA finished basically unchanged, while the MLP Index was slightly lower.
MLPguy Post
Week Thoughts: MLPs Brace for Earnings Midstream was negative across the board this week, and the MLP Index lost more ground to the other midstream indexes that include corporations. Lower oil prices, higher interest rates and general aversion to energy stocks were likely reasons for continued weakness for the sector.
MLPguy Post
Week Thoughts: Macro Noise Offsets MLP News After 5 straight negative days last week, midstream had three positive days this week, including an intra-day reversal Thursday and a positive Friday.
MLPguy Post
Status Update: Midstream Green in September Given the end of the month and quarter fell on a Monday, I wanted to get a quick post out with updated month and quarter end numbers. I hope you’ll understand if the upcoming weekly post is a bit shorter as a result.
MLPguy Post
Week Thoughts: MLPs Selloff On Purpose Risk was definitively off this week across energy stocks, commodities and the broader stock market. Naturally, utilities and REITs caught a bid, and midstream did not. Within midstream, Canada held up well and helped AMNA outperform the AMZ and AMUS.
MLPguy Post
Week Thoughts: Midstream Stocks Sustain September Surge Midstream stocks traded up amid a strong backdrop for energy stocks and for income stocks...
MLPguy Post
Week Thoughts: Scarcity Value Rally in MLPs Midstream stocks outpaced the S&P 500 and utilities this week in the face of falling oil prices and rising interest rates. MLPs were the best performers within midstream, benefitting from the “value rally”...
MLPguy Post
Week Thoughts: Market Advances, Midstream Unmoved It was a short, but steady week for midstream, helped by strong Canadian midstream performance that more than offset weakness from MLPs. Midstream stocks underperformed utilities and the S&P 500...
MLPguy Post
Week Thoughts: Takeout Bid Stops Midstream Bleeding Midstream broke out of its 6-week slump this week, helped by a private equity bid lobbed in Tuesday night, but also helped by risk-on broad market action and rebounding commodity prices.
MLPguy Post
Week Thoughts: Midstream Checked, Market Unbalanced Midstream stocks declined for a 6th straight week, this time joined by a pretty scary broad stock market decline on Friday. Broad market fear appears to be joining the energy sector antipathy and midstream apathy we’ve seen all summer.
MLPguy Post
Five Years Since Midstream Peak: Universe Update and In Memoriam The end of next week, the last trading day of August, will be the 5-year anniversary of the peak of the Alerian MLP Index.
MLPguy Post
Week Thoughts: Yield Inversion, Midstream Aversion Midstream stocks were down inline with broad equities this week, after a rally Friday that almost salvaged the week. It was a 4th straight negative week for midstream, and the MLP Index (on a price basis) now sits 11.3% lower than its high for the quarter reached in mid-July.
MLPguy Post
Week Thoughts: Un-Navigable Midstream Midstream and MLP stock performance accelerated to the downside this week, finishing with bigger losses this week than last week. It was also the 4th consecutive negative week for midstream, the longest such streak since late December.
MLPguy Post
Week Thoughts: Midstream De-Rated It was an inauspicious start to August for the stock market, for oil prices, and for the midstream sector due to the overriding influence of interest rates and tariff rates this week. MLPs had their second worst week of the year and worst week since early February.
MLPguy Post
Week Thoughts: Midstream Flagging into Earnings Barrage Midstream started the week strong Monday, but the bounce back was short-lived as midstream sold off each of the remaining days of the week, even as oil prices stabilized and the broad market rallied. Canada and a few larger corporations dragged down broader midstream indexes relative to the MLP Index, which continues to hold up well in a backdrop of upstream carnage.