CenterPoint Energy said Monday it will consider selling Enable Midstream Partners, its financially struggling pipeline business.
The Houston-based power line and electric distribution company also said it is weighing converting all or part of its utility businesses into a real estate investment trust, or REIT, business model that’s rare for the energy sector.
In an analyst note, Houston-based Tudor, Pickering, Holt & Co. said the potential moves are consistent with its belief that CenterPoint is being pushed by activist investors to explore strategic moves and unload unprofitable business segments.
Enable was created as joint venture by affiliates of CenterPoint, Oklahoma-based power company OGE Energy Corp. and private equity shop ArcLight Capital Partners in May 2013. It went public in 2014 with CenterPoint controlling a small majority of the business.
CenterPoint recorded $537 million after-tax impairment charge for the third quarter of 2015 for Enable’s value. Enable is a master-limited partnership, or MLP, which is a publicly traded entity that does not pay corporate income taxes and is required to distribute most of its income to investors called unit holders in payments similar to stock dividends.
Despite the financial question marks, CenterPoint President and CEO Scott Prochazka said in a prepared statement Monday he’s pleased with the Enable investment, noting that the business grew distributions last year despite the low oil and gas price environment.
“With continued connections and drilling activity across its system, Enable is well-positioned for long-term growth as commodity markets recover,” Prochazka stated. “We believe that now is the right time to explore options for unlocking the value of our strategic investment, reflecting our continuous commitment to drive value for shareholders.”
As for CenterPoint’s utility business, he noted that he is particularly interested in the potential of the REIT business model. A REIT sells like a stock and can operate properties ranging from a shopping center to timberland, but it is rarely harnessed in the energy sector. There is a proposal is pending to turn the Dallas-based Oncor transmission company into a REIT. The business structure pays most of its income to shareholders, but doesn’t have to pay tax on the income distributed to shareholders.
“The REIT structure has recently received significant attention in t...