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April 27, 2013

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Week Thoughts: MLP Ex-Dating Game Begins

MLPs were roughly flat this week, after the MLP Index was up Monday, Tuesday and Wednesday, then dropped Thursday and Friday.   The S&P had a better week, up 1.8%, trading up each day of the week until a slight drop on Friday.  We’ve entered MLP ex-dividend season where distributions get paid and MLPs experience short term price drops.  This seasonal distribution capture trade has sparked a deeper selloff for MLPs in each of the last 3 May’s: 2010 (-6.2%), 2011 (-5.7%) and 2012 (-8.3%).  Over the years, since 1996, May has been the second worst month on average (-0.95%), and only 8 of the last 17 May’s have been positive for the Alerian MLP Index.  Keep in mind, the distributions received in May do help soften the blow for price declines, but the last 3 years at least, those declines have outweighed the benefit of the distributions received.  It will be interesting to see if we break that 3 year trend and MLPs prove more resilient than they have been in the last few years.
Commodities had a strong week as well, with gold (+4.7%) and oil (+5.5%) rebounding, natural gas down but holding at $4.25/mmbtu, and NGLs with small gains.10 year US treasury interest rates dropped and are at year-to-date lows.  The combinations of stronger commodity prices, low interest rates and strong broader stock market should support MLPs through the ex-date weakness this year, but we’ll see.  We will also get more color on MLP managements’ expectations going forward on earnings conference calls as we enter the heart of earnings season.  This week was the last big week for distribution announcements, which have been largely in-line with the Street’s expectations, although upstream MLPs thus far have shown a tendency towards announcing distributions below expectations, LINE and ARP in particular.
Weekly Review_4-26-13
Below is a chart of this week’s price action for the Alerian MLP Index vs. that of the S&P 500.  MLPs diverged from the S&P 500 on Thursday and Friday.
Last Week_AMZ
When looking at the last two weeks, MLPs and the S&P 500 ended at roughly the same place after MLPs outperformed last week and under-performed this week.
Last 2 Weeks_AMZ
The top 5 MLPs this week were led by EQM, a recent midstream drop-down IPO with a limited float.  EQM announced a 5.7% quarter over quarter distribution increase, which helped them get noticed.  Other drop down MLPs TLLP and MPLX were up big this week as well.  NRGM, with storage and transportation assets in the northeast that will benefit from higher recent natural gas prices and expected natural gas activity, got noticed this week as well, and was up 9.0%.  The market seemed to like AMID’s GP sale and acquisition announced late last week, and it was up 10.6% on that and a flat distribution announcement.  On the downside, the market was surprised at how low NS’s distribution coverage was (0.64x, vs expectations of around 0.9x for most analysts).  XTEX investors seemed to head for the exists following its ex-date this week, as XTEX was down 3.3% Friday.  OKS and NGLS also passed through ex-dates this week contributing to their weakness.


The 40% club for the year now includes 6 MLPs (EXLP not pictured below), all small cap MLPs that were trading at yield discounts to the MLP Index at the beginning of the year or that had concerns about distributions or their businesses.  Those concerns have either gone away (with stronger natural gas prices, or through expansions into other business lines – GLP) or the desire to grab yield is so great that these MLPs have way outperformed.  On the bottom 5, we have only 4 negative MLPs for the year.  EVEP got some press this week after research firm Hedgeye came out with negative commentary on EVEP.  Not a difficult call to pick on EVEP, would have been a more impressive short call if they made it at the beginning of the year.  Its almost as if Hedgeye is taking the top buy picks of Ethan Bellamy at R.W. Baird and building short cases.


Variable distribution MLPs did better this week (+2.3% on average), with strength from PDH, TNH, CVRR in particular, but that corner of the MLP space continues to under-perform this year.  MLP GPs continue to produce returns at a slightly faster rate than the MLP Index for the year (+22.7%), but were slightly lower this week.


News of the (MLP) World


MLP press releases were dominated by distribution announcements this week.  Also of note,

  • MLP Parity Act Reintroduced (Barrons post on it)
  • AMJ premium blows out.  In the middle of the week, AMJ’s premium to its underlying index spiked before falling back inline on Friday.  AMJ, the $5.8bn ETN sponsored by JP Morgan, used to track its index very precisely, but last June JPM announced there would be no further creations of AMJ, and its tracking proficiency has diminished slightly.  Speculation on the Internet is that perhaps the spike had to do with the Parity Act reintroduction announcement and eagerness to find a way to play that news.


  • Teekay Offshore (TOO) prices public offering of 6.0mm 7.25% Series A Cumulative Redeemable Preferred Units at $25.00/unit, raising $150mm in gross proceeds (press release)


  • Regency Energy (RGP) prices private offering of $600mm of 4.50% Senior Notes due 2023 (press release)

Corporate Actions

  • Global Partners (GLP) CFO Tom Hollister announces retirement, effective 6/30/13
  • Distribution Announcements:
    • Quarter over quarter increases:
      • RRMS: $0.43, +6.8%
      • SGU: $0.0825, +6.5%
      • EQM: $0.37, +5.7%
      • SXL: $0.575, +5.5%
      • CLMT: $0.68, +4.6%
      • ACMP: $0.4675, +3.9%
      • OILT: $0.405, +3.8%
      • ATLS: $0.31, +3.3%
      • AHGP: $0.7625, +3.0% / ARLP: $1.13, +2.0%
      • DKL: $0.385, +2.7%
      • LNCO: $0.725, +2.5%
      • WPZ: $0.8475, +2.4%
      • USAC: $0.348 (pro-rated $0.435), +2.4%
      • SMLP: $0.42, +2.4%
      • BKEP: $0.1175, +2.2%
      • GLP: $0.5825, +2.2%
      • MCEP: $0.505, +2.0%
      • APL: $0.59, +1.7%
      • HEP: $0.4775, +1.6%
      • ETE: $0.645, +1.6%
      • MMP: $0.5075, +1.5%
      • DPM: $0.70, +1.4%
      • NRGM: $0.395, +1.3%
      • MWE: $0.83, +1.2%
      • BBEP: $0.475, +1.1%
      • LGCY: $0.575, +0.9%
      • STON: $0.595, +0.8%
      • MMLP: $0.775, +0.6%
    • Flat quarter over quarter:
    • Variable: RNF ($0.50), PDH ($0.67)


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