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Tuesday, October 6, 2015

Financial Insight: MLPs—Stuck in the Stock Market
How recent poor performance reflects on the value of the c-store business

Source: CSP Daily News
By Jeff Kramer, Managing Director, NRC Realty & Capital Advisors

CHICAGO — In just five years, the convenience-store industry has seen well over 10,000 convenience stores come under master limited partnership ownership, tying the industry’s growth and success to a stock-market index.

The unfortunate part is that index—one driven by tax structure and benefits—is one of the poorest performing on Wall Street.

Master limited partnership (MLP) stock prices continue getting hammered with the rest of the stock market and, in fact, worse. The index most representative of the c-store industry is the Alerian MLP Index (AMLP), which declined more than 15% in the third quarter of 2015 alone. Only two quarters in MLP history had larger declines, one of which was the nasty fourth quarter of 2008.

Thus far, the AMLP has not declined as precipitously as it did just prior to the 2008-2009 Great Recession, but it’s getting close.

The C-Store Connection

Understandably, the index decline is partially due to huge declines in energy-related commodity prices, but even midstream pipeline-related MLPs have fallen sharply despite excellent dividends and earnings. The carnage has also affected downstream MLPs, such as Energy Transfer Equity LP (ETE), Cross America Partners LP (CAPL) and Global Partners (GLP), even though all of these companies have benefited handsomely from lower oil prices.

CST Brands Inc. (CST) even announced a sizable open market stock buyback program of Cross America Partners LP, its associated MLP for property drop downs, which has not helped either companies’ stocks thus far.

Further, ETE is clearly changing its company focus with the recently announced huge purchase of Williams Energy for $32.6 billion—ah, cheap money. Interestingly, though, Williams had just rejected an offer from ETE for $48 billion in June of this year when ETE’s stock price was much higher.

Where is the common thread with the MLP group, despite excellent earnings in all but the direct commodity related stocks so far? All of these companies have clearly benefited by the incredibly long string of low interest rates. In a slowing world economy, interest rates do not seem to be going up any time soon. Low commodity prices appear to be around for quite a while too.

The Federal Reserve is out of ammunition, the Obama Administration can’t work with Congress on anything, and 2016 is a big election year with uncertain outcomes. The Fed seems to be “talking up” the economy by saying it will raise rates, yet it voted 9 to 1 recently against a 0.

To see a list of convenience stores for sale and gas stations for sale, click here.