×
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

December 9, 2012

Viewed 625 times

Week Thoughts: MLPs Going the Wrong Way

The Alerian MLP Index was down 3.0% this week, its worst weekly drop since May of this year when MLPs dropped 5.3% in a week.  That week in May, the broader market sold off (S&P 500 was down 4.2% that week).  This week, however, the broader market (here measured by the S&P 500), despite bouncing around earlier in the week, finished up slightly on the positive jobs report released Friday.   So, MLPs under-performed the market by 3.15% this week.  That large an under-performance in a week hasn’t happened since March of this year, but it hasn’t happened twice in a year since 2008.

Its been a wild ride for MLPs since the election, but until this week, MLPs and the market were moving in lockstep.

It happens periodically with MLPs where the stock market will rally over a day or two and the MLP reaction is delayed for whatever reason.   This year however, those gaps haven’t closed and the big under-performance weeks have helped the S&P 500 build an insurmountable lead on the MLP Index throughout 2012, which now stands at more than 1000 basis points.

This week’s price action for MLPs probably had something to do with the $951.8mm of equity issuance across 4 equity offerings (more than $1bn counting the overallotment options on those deals).  Follow-on offerings keep coming and they keep struggling in the aftermarket, even with a 1 day marketing effort like we’ve seen many more of lately (as opposed to overnight offerings).  The few bright spots are recent IPOs (MPLX +4.4% this week) and freshly priced IPOs (WGP popped 27.3% on its first trading day).
Also impacting MLPs of late has to be the continued deterioration of NGL prices, particularly Mt. Belvieu ethane, which reached a fresh low on Thursday, and finished the week down 10% again, and a staggering 71% year to date.  See the chart below for an indexed chart of the MLP Index total return (green), ethane price (white) and propane price (orange).  WTI oil was also down 3.4% this week.

Whatever the reason, MLPs are going the wrong way.  Since my wife has started a book selling crusade around Austin at various holiday bazaars, lately on weekends I am finding myself babysitting my 3 kids (all under 6 years old) on my own.  And while we (my wife) don’t let them watch TV or movies more than an hour a week, when I am in charge we sometimes fire up the Nintendo Wii, so the kids can watch me relive my youth of playing Super Mario 3.  This weekend, we played some Mario Kart.  When I let them try a race, they inevitably end up going the wrong way.  When that happens, there is a helpful little turtle in a cloud that floats in to let them know they are going the wrong way.

MLPs are going the wrong way and will need some help going forward.  They need a star, some red turtle shells, and mushrooms to get back into the race.  Oil and NGL price increases, a slowdown in MLP equity issuance, and tax regulation certainty would probably work too.  Not sure if we’ll get any of that for Christmas, but the lump of coal we’ve been forced to eat the last month is not cool.
 
Winners & Losers
QRE and MEMP were down on their equity offerings this week.  The market knew the MEMP deal was coming, given the MLP had to file an S-1 prior to launching its equity offering because it went public less than a year ago.  But it was up 7.4% last week to lead all MLPs.  This was the first equity deal for MEMP since its IPO, and therefore represented more than 100% of the MLP’s public float.  Oh, and it was executed with a 1 day marketing period (as opposed to the overnight deals we saw almost exclusively for the last few years until August of this year).  So, it was going to be a tough deal regardless, but pricing in the shadow of WGP and a weak commodity price week didn’t help either QRE or MEMP.  WPZ was the largest MLP on the loser list this week, down on weak NGL prices that may lead to another quarter of unusually low distribution coverage.
Only one MLP was up more than 2% this week: MPLX, which has been on fire the last few weeks (up 7% last week).  The chart below doesn’t include GPs or variable distribution MLPs, but its worth noting that 2 GPs, WGP (as mentioned above) was up 27.3%, ETE was up 3.6% , and 3 variable distribution MLPs (ALDW +11.7%, PDH +4.0%, and NTI +2.1%) were bright spots as well this week.

Coal MLPs remain the worst performing MLPs year to date, while the top 5 is a mixed bag.

That’s it for this week, but I expect to write a full postmortem on the WGP IPO and what it could mean for future large integrated energy companies and their general view that launching a successful MLP doesn’t move the needle.  WGP’s GP stake (not counting the LP stake), which is ultimately owned by Anadarko Petroleum (APC), is valued at more than $2 billion.  That is value, created in 4.5 years, that would not have existed without the creation of the WES MLP and the magic of incentive distribution rights.
News of the (MLP) World

Very active week in equity, M&A and debt this week…
Equity            

  • QR Energy (QRE) prices public offering of 12.0mm common units at $16.24/unit, raising $194.8mm in gross proceeds
    • Overnight offering priced at 3.97% discount to prior close
  • Western Gas Equity (WGP) prices upsized initial public offering of 17.1mm common units at $22.00/unit, raising $376.2mm in gross proceeds
    • Offering upsized 14%
    • Priced above the range at $22.00/unit (3.0% yield, second lowest ever), opened at $27.00/unit closed at $28.00/unit, increase of 27.3%
    • Current yield: 2.36%
    • Net proceeds will be used to purchase 7.58mm units of subsidiary Western Gas (WES) at $46.00 per unit
  • Memorial Production (MEMP) prices public offering of 10.5mm common units at $17.00/unit, raising $178.5mm in gross proceeds
    • 1 day book build, file to price decline of 5.87%
  • Atlas Pipeline (APL) prices public offering of 9.75mm common units at $31.00/unit, raising $302.3mm in gross proceeds
    • 1 day book build, file to price decline 1.7%, which shows that offerings can trade well when accompanied by accretive acquisitions

Debt

  • Atlas Pipeline (APL) prices $175mm of 6.625% senior notes due 2020 at 103% of par, yield to maturity of 6.003%
  • Targa Resources (NGLS) prices $200mm private placement of 5.25% senior notes due 2023 at 101% of par, yield to maturity of 5.093%

M&A / Growth Projects

  • Enbridge Energy Partners (EEP) announces plans to invest $3.4bn in a Light Oil Market Access Program (press release)
  • DCP Midstream (DPM) announces construction of new 200mmcf/d processing plant serving the Eagle Ford Shale
  • Plains All American Pipeline (PAA) announces $500mm acquisition of crude oil rail terminals from U.S. Development Group (press release)
  • Teekay LNG (TGP) announces 50/50 joint venture with Exmer NV to focus on midsize gas carriers, TGP to invest $140mm (press release)
  • Lehigh Gas (LGP) announces $29mm acquisition of 24 gas stations from Dunmore Oil Company and Jojo Oil Company
  • Atlas Pipeline (APL) announces $600mm acquisition of Cardinal Midstream (press release)
RELATED CONTENT
No posts matching your criteria
MLPguy Post
Week Thoughts: MLP Erosion Resumes Stocks of all types were negative this short week (even utilities, barely), so despite a rally in commodity prices and a further drop in interest rates, midstream stocks were negative. MLPs were down for a 4th week in the last 5 weeks and were again the worst performing group in midstream.
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.