TradeWinds caught up with Michael Webber of Wells Fargo Securities for a basic introduction before exploring the maritime MLPs that are gaining mainstream popularity with the support of market heavyweights like John Fredriksen, Evangelos Marinakis and Angeliki Frangou.
Q&A with MLP guru Mike Webber- Understanding the basics
Question:What is an MLP?
Answer:MLPs are limited partnerships whose interests (limited partner units) are traded on public exchanges just like corporate stock (shares). MLPs consist of a general partner (GP) and limited partners (LPs). The GP (1) manages the partnership, (2) generally has a 2% ownership stake in the partnership, and (3) is eligible to receive incentive distributions. The LPs (1) provide capital, (2) have no role in the partnership's operations and management, and (3) receive cash distributions.
Question: What makes an MLP unique?
Answer: Due to its partnership structure, an MLP generally does not pay income taxes. Thus, unlike corporate investors, MLP investors are not subject to double taxation on dividends. Limited partner unitholders typically receive a tax shield equivalent to (in most cases) 80-90% of their cash distributions in a given year.
Thus, an investor is typically paying income taxes roughly equal to 10-20% of his or her distribution. The tax-deferred portion of the distribution is not taxable until the unitholder sells the security. Many marine MLPs (TOO, NMM, GMLP, and CPLP) are 1099 filers and taxed as corporations (since they already enjoy significant tax advantages), which make them more appropriate for IRAs and 401ks relative to traditional MLPs.
MLP guru’s guide to five midstream marine partnerships
Wells Fargo Securities is taking a fresh approach to midstream marine MLP research in a move that appears to have set its lead shipping analyst apart from the pack.
Michael Webber on Wednesday separated Capital Product Partners, Teekay Offshore Partners, Teekay LNG Partners, Navios Maritime Partners and Golar LNG Partners from the rest of the names on his coverage roster and stamped the collective with a “market weight” rating.
The analyst says the introduction of what was dubbed the “Midstream Marine MLP Group” is unique in that no other maritime equity researchers cover all five companies and believes he is the first to “surround” the MLP segment by placing the US-quoted shipowners under one roof.
In the inaugural note, Webber took a closer look at the individual partnerships by examining the fundamental outlook for each of the underlying sectors-tanker, LNG and dry-bulk- before comparing their performance to the broader MLP universe.
Navios Partners and Teekay LNG were stamped with a “market perform” rating while the remainder were branded “outperform” with Teekay Offshore taking the title of top MLP pick with a 7.4% and what the analyst described as a “robust growth pipeline”.
Golar LNG also emerged as a leader after securing an upgrade earlier in the day on the back of a bet that its parent, Golar LNG Limited, boasts an operating fleet and newbuilding backlog that could provide “substantial growth opportunities” for unitholders.
“We think 2-3 [vessel] dropdowns are feasible over the next 18-24 months (contingent on new long-term charters), with those dropdowns potentially driving $0.10-0.12 per unit in quarterly distribution upside,” the researcher continued.
“That incremental distribution growth (10%/year) also equates to $6.00 per unit in appreciation (18%), a potential total return of 31%. While there are other LNG names with wider yields than Golar LNG, quite simply, we find the slightly lower yield and better growth prospects more attractive."
Check out the link located at the top right to read Webber’s Midstream Marine MLP Group report infull. You can click on the byline below to email the author with suggestions for articles based on expert commentary about complex market topics.
