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Kinder Morgan Energy Partners, L.P. Message Board

  • iamclownpuncher iamclownpuncher Jul 15, 2004 9:02 AM Flag

    KMR vs. KMP - Many questions

    Absolutely new to the board, but I was wondering whether one of you knowledgable folks could explain the practical differences between KMR and KMP... I notice that KMR has a higher yield (by virtue of the lower share price), but a higher p/e.

    Other folks have mentioned UBTI(?) reporting requirements, etc. I am completely unfamiliar with them - what are they?

    What, precisely, is meant by a "distribution"? How does it differ from a dividend?

    Which of these two (assuming I want the highest after tax yield and am reinvesting dividends) would be better to park $$$ in for a taxable account? For a 401K? Why?

    Thanks in advance for any help you can provide.

    CP

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    • Maybe someone is arbing the spread between KMP/KMR. Seems logical.

      Also might have to do with our good buddy K. Wulff. There is no doubt in my mind that he is not issuing sale calls on KMI/KMP because he is "looking" out for the retired investors. Thats the biggest load of bull I've ever heard. He is at the very least, affiliated with the street.con as ole always negative on energy Melissa Davis has used him in her articles a number of times. Its just a game they play. They think they can hurt KM but KM just keeps getting bigger and bigger and making us richer and richer. Long live King Rich!!!

    • Why high short ratio 7.3?

    • Someone else answered parts of your questions, but here are a few more points to consider.

      First, you mention KMR trades at a higher p/e ratio. This is because, as a corporation, KMR must record a deferred liability (with a related expense) for the corporate-level tax that would result from a sale of its interest in KMP. This expense reduces GAAP earnings and increases the p/e ratio. It's also completely irrelevant. KMR owns special i-units in KMP which do not get allocated any of KMP's taxable income. Therefore, there's no current tax on operations at KMR. Furthermore, KMR has no intention to sell the KMP units for cash, which would trigger the tax liability. In fact, if anything goes wrong, and the IRS does assess a tax against KMR for any transaction which doesn't result in enough cash to pay the tax, KMI is required to indemnify KMR for the payment. In any case, make your own decision, but if you look at KMR's balance sheet you'll see a large (and growing) liability for deferred taxes.

      On a go-forward basis, the expected return on KMR and KMP should be similar, unless KMI figures out a way to shrink the KMR discount. KMR is simply a much easier investment from a tax administrtaion perspective. Owning an interest in KMP creates (1) potential state tax filings in the states in which KMP does business, and (2) a need for at least one extra form on your tax return, and (3) a need to keep track of your basis (tracking annual taxable income and distributions). Finally, in a retirement account (are you sure you can buy KMR in your 401(k) plan?), there is always a risk that the UBT might apply. If your investments are small, the UBT is a non-issue. Also, the IRS, to my knowledge, has never even tried to track UBT in IRAs. But who needs the headache of a possible problem?

    • Re to:iam
      "What, precisely, is meant by a "distribution"? How does it differ from a dividend?"

      Read back through the posts here and you will find the answer to all your questions.

      But this;

      Distribution is paid like a dividend, but:

      You do not pay taxes on the distributions at the state or fed level. When you sell your shares, you subtract all the distributions from your cost basis, the pay taxes on your share gains, and your distribtuions. So you pay later, and you pay 10 points less than income on your distributions. If you put it in an IRA, you then pay income rate on the distributions.

      Consider this:

      You buy a stock and it pays dividends, and you pay taxes as you go, then it goes bankrupt.

      You buy a MLP and it pays distributions and you pay no taxes. It goes bankrupt, you do not now pay any taxes on your past distributions.

      In the first case you can take your losses but limited to 3K per year.

      Just a thought.

      In my case (retired) give me the cash now, I may not be here when it comes time to pay taxes on KMP.

      All the above subject to discussion if my thoughts are in error.

      -chart-

 
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