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March 22, 2015
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MLPs stopped issuing equity, the Dollar faltered, oil and gas prices bounced, interest rates collapsed, the heavens parted…and that’s all it took for MLPs to finally trade up this week. The Alerian MLP Index rose 1.7%, well ahead of the Alerian MLP Equal Weight version, indicating strength in larger MLPs, something we haven’t seen much of this year. MLPs trailed the S&P 500 (+2.7%) and Utilities (+3.8%), but green is green, so no complaints.
Oil prices have bounced off their fresh lows hit on Tuesday, helped by broader macro factors that held back the Dollar this week. Oil inventories had another large build this week, so the oil price bounce still feels shaky.
Deal Break
After 5 equity offerings last week, there was not a single offering this week, and very little deal-making to speak of this week. And why would there be deals? Every school in the greater Houston area, it seems, was on Spring Break this week. Public schools in Memorial (Spring Branch ISD), West University (HISD), the Woodlands, plus private schools St. John’s, Kincaid and Episcopal were all off. Many MLPs are based in Houston, but a greater percentage of the bankers and lawyers that service them are located there. I expect they’ll get back to the work of deal making and accessing capital markets next week.
I was in Calgary this week (not for Spring Break). I heard a few times about a slightly different break in the spring, called spring breakup. Particular to Canada, spring breakup happens each year when roads are soft from frost melting and heavy equipment can’t travel on those roads, leading to less production activity for a month or so.
Maybe this week’s positive MLP price action represents some kind of thawing of the frost surrounding MLPs. Or maybe it’s just a pause on a path lower for MLPs, because risk-on forces were too soft to let anything heavy weigh on MLPs this week.
Winners & Losers
Marine MLPs led the way this week, with TOO and GMLP having strong weeks. TOO’s performance was the result of first oil on the Knarr development and TK’s floating production storage and offloading connected to it. TOO is expected to buy the FPSO from TK at some point in the first half of 2015. In the oil beta category, DPM showed signs of life, while HCLP traded up with commodity prices.
Even in a positive week, there was a wide range of returns this week. Oil’s bounce didn’t help the 3 upstream MLPs that made the bottom five this week, 2 of which were repeats from the bottom 5 last week.
The top 5 year to date continues to be dominated by small-cap, non MLP Index names. The bottom 5 continues to be dominated by commodity exposed MLPs, like EVEP, ARP and ARLP, as you would expect.
TOO climbed out of the bottom 5 with its big week. MMLP climbed back near the top of the sector. CPLP broke into the top 5, presumably on the news that it will be joining the Alerian MLP Index.
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