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.
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.”
August 10, 2014
Viewed 599 times
The Alerian MLP Index broke its 7-day losing streak in a big way on Monday with a 2.1% pop, the best day for the MLP Index all year. That huge day was followed by the first day of the year that all 50 MLPs were down on the same day, resulting in a 1.8% decline overall that erased most of Monday’s gains. The rest of the week was much less volatile, with the MLP Index finishing up 0.7% for the full week. The broad market was volatile as well, finishing up 0.3%, while utilities were flat. Interest rates were lower, and the US 10 Yr now yields 2.42%, 61 basis points lower than at year end 2013.
Within the MLP Index, large cap MLPs outperformed the smaller ones, as evidenced by the disparity between the 0.3% price change for the Alerian MLP Index and 0.3% decline for the Equal Weight version.
On the commodity front, WTI oil price dropped to a six month low on Wednesday, before recovering to close out the week roughly flat. Natural gas prices bounced 4.5% this week, but that wasn’t enough to pull up ethane (down 2.7%).
Earnings: Exports in Focus
It was another busy week of earnings releases, with more than 40 MLPs reporting. Results were mixed, but when results failed to meet the Street’s expectations, research analysts were able rationalize the weaker than expected results in various ways. Below are some paraphrased examples of what analysts wrote about earnings.
On the conference calls, the clear focus was trying to figure out which MLPs might have the ability to join the condensate exporting party that Pioneer and EPD started last month. The consensus seems to be that PAA is closest to joining the party. Also notable, analysts pressed management for details on DPM’s small Chesapeake export terminal project to export butane from the Marcellus Shale.
The investment community is eager to identify future potential beneficiaries from exports of abundant U.S. resources, and with good reason. Firms that have the ability to provide export outlets today produced strong results in 2Q (EPD, NGLS, OILT and SXL all handily beat expectations). Further conflict in Iraq escalated over the weekend. Increased geopolitical conflict could potentially provide cover for approving further condensate exports under the rationale of providing secure supply to the global market. Worth monitoring, but likely something for the next administration to tackle.
There are a few final earnings announcements to come next week. Beyond earnings, and potentially an overnight offering or two between now and the end of the month, I expect the news flow to slow substantially by the end of this coming week. The IPO window is closed until after Labor Day, but it should be a very crowded capital markets calendar in the Fall.
Winners & Losers
LGP was the runaway winner this week after it announced the latest transformative M&A transaction in the MLP space. Read about the transaction below, but it was a combination of the ETP/SUSS deal and the DVN/XTEX deal that dramatically changed the expected growth profile of LGP. IPO HMLP was the second best performer for the week, which is consistent with last week when the 3 IPOs led the MLP sector’s returns. DKL popped 11% after posting results that blew away expectations and that included 2.0x quarterly coverage. HCLP and ENBL round out the top 5.
HCLP went from bottom 5 last week to top 5 this week. GLOP and BKEP went the other way, from the top 5 to the bottom 5.
For the year to date, BWP has caught and passed EROC, which means we have a new biggest losing MLP this week. MMLP joined the bottom 5 after its rough week. On the upside, GLOP dropped from 2nd to 5th, but the other top performers remained intact.
MLP News
We had another successful MLP IPO launch this week, making it 10 MLP IPOs for 2014 so far. 9 out of those 10 closed their first day of trading up from IPO price. The one broken IPO of 2014 was coal producer Foresight Energy (FELP). Also, while MLPs didn’t get the cover of Barron’s this week, there were two articles relevant to MLP investors. One was the annual round table MLP discussion, which this year featured two research analysts (Michael Blum from Wells Fargo, Becca Followill from US Capital), one tax attorney (Tim Fenn, whose middle name might be MLP), and one buy side representative (Doug Rachlin of Neuberger Berman). The second article covered the topic of yieldco renewable spin offs from utilities, and how they were similar to MLPs.
Equity
M&A / Growth