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 15, 2015
Viewed 1117 times
With 2Q MLP earnings season finally in the books, and with all the negative MLP-specific news priced in for another 90 days, MLPs traded much better this week, even with another leg down in oil prices to fresh lows. The Alerian MLP Index (AMZ) increased 5.2% including distributions. Volatility continued, as daily action alternated between positive and negative each day this week. Large cap MLPs outperformed smaller MLPs (equal-weight Alerian up only 4.2%), a positive indicator of fund flows into the sector. In a reversal of last week, MLPs outperformed other equities by a wide margin, including U.S. stocks (S&P 500 +0.7%) and utilities (+2.1%).
MLPs appeared oversold last week, and were due for some relief. Oil sentiment continues to weigh on the MLP sector, but if oil prices show signs of life in the coming weeks, MLPs should trade higher, given there will be limited equity issuance and oil price sentiment seems to have been the main driver of the recent MLP draw down.
PIPEs, like we saw this week with OKS, are positive for the sector (even if they are done at steep discounts and result in significant dilution) because they reduce the sector’s equity absorption needs (i.e. overhang). The $750mm bought by sponsor OKE and Kayne Anderson is $750mm the ATM and public capital markets don’t have to take down in the zero sum capital environment.
Investors short the MLP sector heading into earnings now have fewer catalysts ahead (beyond oil prices, which can be shorted more directly elsewhere), which may lead to technical tailwinds from short covering in the short-term.
Several sponsors stepped in to aid their struggling MLPs this week (OKS, AMID, HMLP, KNOP), and the market reaction was positive in most cases. Further evidence of sponsor commitment to MLP financing vehicles with out of whack prices should come through as other sponsors take note.
All-in-all, after clawing back around half of last week’s decline in value in a down oil price week, sentiment is clearly improved from last week (could not have gotten much worse) and the sector seems better positioned to sustain a rally in the near-term. Having said that, after several head fakes over the last year, caution is still warranted with oil prices at 6 year lows.
Winners & Losers
AMID was the runaway winner after announcing a dropdown acquisition at an attractive multiple and guiding to 5% annual distribution growth. PTXP and USDP both rallied after announcing earnings. The bottom five was again dominated by Upstream MLPs (E&P and Coal) while SXE quarterly earnings did not impress the market in a positive way.
Back to back 30% declining weeks is not typical, but it happened to NSLP, which now trades under $0.60/unit.
For YTD, VLP jumped into the top 5 replacing MMLP while the rest of the top and bottom names are unchanged with some shifts in the order. After another poor showing this week, NSLP is now down more than 90% YTD.
General Partner Holding Companies
All but three GPs generated positive returns this week after all were negative last week. ATLS jumped 23% after reporting earnings this week and PAGP clawed back some losses from last week’s debacle. ETE and WMB performed strongly on no news (perhaps positive merger vibes) while OKE rounded out the top 5 despite falling late in the week after the OKS deal. There weren’t any clear trends or drivers of performance among the bottom 5.
News of the (MLP) World
Equity
M&A / Growth Projects
Other