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The Best Part About This Brand-New MLP IPO

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It's been a very robust year for master limited partnership IPOs to say the least. On Thursday, Western Refining (NYSE: WNR  ) successfully spun off its midstream logistics MLP, Western Refining Logistics (NYSE: WNRL  ) . The partnership became the 14th MLP to make its debut this year.

Yes! Yield!
At first blush, the one thing that really stands out about this IPO is the yield. Western Refining Logistics priced 13.75 million units at $22 per unit, resulting in a windfall of $302.5 million. With a planned annual distribution of $1.15 , Western debuted with a yield of 5.2%. This is much better than what we've seen from these refining midstream spinoffs in the past. After its first two days of trading, the partnership closed at $24.30, so it is currently yielding 4.7%.

We've watched several midstream spinoffs from refiners hit the market with very low yields. Most recently, Phillips 66 Partners (NYSE: PSXP  ) was less than 3% when it debuted, and it collapsed even further with PSXP's first-day pop -- all this despite the average yield for an MLP in today's market coming in around 6%. Here's a quick look at what the other refining midstream MLPs are yielding right now.



Phillips 66 Partners




Tesoro Logistics (NYSE: TLLP  )


Holly Energy Partners (NYSE: HEP  )


Source: Google Finance.

While these stocks have experienced some appreciation, which would cause yields to drop, that's true of most MLPs this year, and there are plenty that still yield more than 4%. Holly Energy Partners is really the only big yielder here, though it will be interesting to watch what happens with PSXP and MPLX. Will their yields grow? Or languish like Tesoro Logistics? Only time will tell.

What else is on the table?
Obviously, we don't want to buy an MLP merely because of its yield. Western Refining Logistics offers something else that should appeal to MLP investors, however: fee-based contracts.

Starting small, the partnership will generate the vast majority of its revenue from two 10-year contracts with Western Refining. Both of these contracts are fee-based agreements, which means there will be no exposure to commodity risk, but we will see stable income used to generate stable distributions for unit holders.

As far as its growth story goes, the partnership plans to maximize existing assets, acquire additional assets from Western Refining and third parties, as well as pursuing organic growth. Given that its current foothold is in the booming Permian Basin, the future could be quite bright if Western executes on this plan.

Bottom line
There's a lot to like about midstream MLPs, particularly those that come attached to mature, stable businesses like Western Refining. Western Refining Logistics provides a rare opportunity for MLP investors to take advantage of that, and combine it with a solid yield in an MLP subsector that has underwhelmed in that regard as of late.

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