This year's National Association of Publicly Traded Partnerships conference came to a conclusion on Thursday, 5/21, after two days of company presentations, 1-on-1 meetings, and expert panels opining on tax issues, packaged product growth and the future ownership structure models. The conference moved down from Stamford to Sawgrass, providing a more comfortable and scenic venue to handle the expanding crowd.
The audience continued to be dominated by Investment Bankers and Analysts, with a low percentage of the 1000+ attendees being individual investors and Registered Investments Advisors, the constituents who will be the key to future growth as more equity is issued to meet the $640 billion of estimated growth projects over the next 10 years.
Over 68 MLPs, including Kinder Morgan (NYSE:KMP)(NYSE:KMI), Linn Energy (LINE), Hi-Crush Partners (NYSE:HCLP), Emerge Energy Services (NYSE:EME) and many others provided the audience with an update on their assets, growth initiatives and volumes with a focus on the high growth shale plays of Utica and Marcellus.
Overall, midstream MLPs continue to show a path to transparent and double-digit distribution growth. Those with assets in the key regions are poised to grow significantly, while others are looking to expand their footprint to generate future growth.
In light of the overabundance of information shared, the following are just a few key highlights that shaped our outlook by the end of the conference:
- Institutional Ownership, as indicated by K-1 filings, expanded by 24% from 2012 to 2013 while overall units increased by 6%.
- From a regulatory perspective, the "world is a safe place for MLPs" - David Oelman, Vinson & Elkins. The IRS pause on Private Letter Rulings is "not a question of whether MLPs should exist, but rather what is the incremental size of the universe."
- Midstream C-Corp asset owners are increasingly considering the MLP structure to maximize shareholder value.
- High growth MLPs, such as Oiltanking Partners (NYSE:OILT), Hi-Crush, Emerge and MPLX (NYSE:MPLX), were well attended sessions.
- MLPs continue to show lower correlations to interest rates over the long term, but increasingly are impacted by equity volatility, a trend likely to continue with packaged product ownership.
- Fund Flows continue to grow, with an expanding interest from foreign investors, particularly the Japanese market.
- Investors need to be reminded of the 3.8% income tax surcharge over $250k, which also applies to MLP passive income and gain on sale of MLP interests along with interest, dividends, etc
A few noteworthy comments made during the company presentations:
- TC Pipelines (NYSE:TCP) along with its parent TransCanda Corp. (NYSE:TRP), continue to develop alternative plants for Keystone. "Tar sands will make it to market, by rail or barge if necessary."
- Linn Energy, 12 hours after announced the Exxon Mobil (NYSE:XOM) swap, were optimistic about its swap, but mentioned that the remaining acreage has a higher allocation of capital expenditures, which may offset the benefits of the swap.
- Kinder's CFO Kimberly Dang aggressively defended the ability for KMP to generate high ROI despite its 9% cost of capital. Dang reiterated the position that owning KMI presumes that you believe in KMP's growth. The merging of KMP with El Paso Pipeline Partners (NYSE:EPB) would not yield much synergies beyond the costs associated with exchange listing and tax preparation. No KMI dropdowns are planned from the two remaining operating assets. KMP's $5 billion Trans Mountain pipeline is expected to have a regulatory decision by July 2015.
Overall, the expansion of energy production and infrastructure continues to provide a compelling thesis for initiating and expanding portfolio exposure to the MLP asset class. At some point, the growth will stabilize, which will alter the valuations for many MLPs. The crystal ball debate is how far into the future that may be. From the data presented over the duration of the conference, it seems apparent that the next 3-5 years will continue to generate higher growth for many Master Limited Partnerships, offering investors the opportunity for double digit tax deferred income and total returns. With proper due diligence, investors can continue to be rewarded by owning the right mix of MLPs.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.