×
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 1042 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 Positive, Beyond Partnerships (BP) On the back of rebounding oil prices and an ever-higher stock market, midstream indexes were positive this week. In a familiar refrain, the broader AMNA index was well ahead of the MLP Index, reflecting better performance among corporations
MLPguy Post
Week Thoughts: Midstream Reprieve MLPs and midstream companies arrested their recent decline this week with a flattish week. The broad equity market had a strong week, helped by gains from some big tech firms on earnings results.
MLPguy Post
Week Thoughts: Somber Midstream, Market Mentality Midstream was negative this week, along with most other global equities and commodities.  Midstream outperformed broader energy stocks, but underperformed the S&P 500 and utilities, which continue to grind higher. 
MLPguy Post
Week Thoughts: Market Seeks Shelter, Not MLPs MLPs and midstream came back to earth this week, dragged down by oil and natural gas prices that were too weak to be ignored by midstream investors after 6 weeks of gains.
MLPguy Post
Week Thoughts: Midstream Phase Won Midstream gains kept rolling for a sixth straight week, again riding a strong broad equity market higher, and defying weakness in upstream energy stocks (XOP -3.6%).
MLPguy Post
Week Thoughts: Falling Tension, Rising Tide Lifts Midstream MLPs extended their winning streak to 5 weeks, but MLPs and midstream stocks were weaker towards the end of the week as oil prices and energy stock prices sank lower.
MLPguy Post
INFRASTRUCTURE DELIVERS MLPs have bounced 10%+ off the early December 2019 multi-year low and are enjoying a seasonal respite from fund outflows. Without the stress of daily extreme volatility and angst, now is an ideal time to re-evaluate midstream exposure and consider (or re-consider) listed infrastructure.
MLPguy Post
Week Thoughts: Clean Slate Midstream traded up for a 4th straight week since bottoming on December 3rd.  MLPs are up 12.7% from the bottom and the AMNA isn’t far behind with a 10% gain.
MLPguy Post
2019 Year-End Midstream Statistics The year ended this week, which you may have heard.  From this point forward, we forever will be closer to 2050 than 1990.  So, it is time to review the final results of 2019.
MLPguy Post
Week Thoughts: No Holiday Drama for Midstream Midstream traded up the first 3 days this week to cap a run of 7 positive days out of 8.  Then on a very low volume session Friday, midstream corporations and MLPs sold off a bit to finish the week slightly positive overall.  Midstream broadly was in-line with the broad stock market overall (S&P 500 +0.6%).
MLPguy Post
Week Thoughts: Pipelines Piping, MLPs A-Leaping Midstream’s bounce off the bottom continued this week. In basically a repeat of last week, the MLP Index gained 4.6% the first three days of the week and was flattish from Wednesday’s close through the end of the week.
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.