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Kinder Morgan Energy Partners, L.P. Message Board

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  • rrb1981 rrb1981 Aug 1, 2009 4:01 PM Flag

    KMP Annual Distribution

    I admire Kinder Morgan and Rich Kinder, but he has grown the company so large, that high growth in the distribution is nearly impossible.

    Further, Kinder has to resort to tertiary recovery projects like SACROC and Yates to grow the distribution. I think these are fabulous assets, but I disagree with having them in an MLP while simultaneously running with a coverage ratio of 1.0x (or in the current case, a less than 1.0x). I think Kinder Morgan would be much more attractive if Kinder finally merged the GP IDRs into KMP. KMP has grown so large that even 3% distribution growth at KMP translates into a significant amount of money to the GP.

    On the other hand, KMP has a stable of solid, regulated pipelines with steady predictable cash flow, so investors pay up for top notch management and safety and sacrifice above average growth.

    I made a small fortune on KMI and I think highly of Kinder, but I doubt that KMP's best days are ahead of it. The other issue I dislike about Kinder and Enbridge are the i-units. I understand fully that it is essentially a dividend reinvestment plan, but the fact that they yield much higher hurts them every Q. If Kinder were to merge the GP's incentive distribution rights back in the MLP and force the conversion of KMR into KMP units, I think it would be much more attractive.

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    • RRB:
      you wrote "The other issue I dislike about Kinder and Enbridge are the i-units. I understand fully that it is essentially a dividend reinvestment plan, but the fact that they yield much higher hurts them every Q."

      Could you explain a bit more what you are thinking? I'm always trying to understand KMR, and MLPs in general, and there are lots of weird twists to understand. The price (or yield) difference between KMP and KMR (and the vastly smaller one between EEP and EEQ) always baffle me.

      I think of KMR from 2 different points of view; what does the investor get out of it, and what does KM get. No reason to expect those to be the same.

      I agree: from the KM perspective, KMR works like a mini-secondary each quarter. There are some similarities there to a company-sponsored DRIP company gets new investment capital by directly selling new shares.

      But I don't follow your comment "...but the fact that they yield much higher hurts them every Q." Would you expand on this?

      • 1 Reply to abter1
      • KMR hurts KMP when the yield of KMR is higher than KMP. As Kinder Morgan pays KMR holders with additional KMR units, the higher the yield, the more units it takes to make the distribution. If, in theory KMP paid $1.00 on a $10.00 unit, that would be a 10% yield. Say for example that KMR is trading at $9.00 for an 11% yield. When it comes time to pay the distribution, it takes more KMR units to pay the paid-in-kind distribution. This compounds every quarter. It would be better for KMP to simply have a DRIP that would buy units on the open market. On the other hand, KMR units allow Kinder to know exactly how much money they can hold back every Q. One thing I have always been unclear about is how the surplus distributable cash flow is accounted for regarding KMR. My understanding is that it is factored in, so if KMR were converted to KMP, Kinder would still have the same coverage ratio, only they would not be able to retain the cash, which would force secondary issues....

        Overall, I just don't care for the i-units, but that is just me.

    • "I think Kinder Morgan would be much more attractive if Kinder finally merged the GP IDRs into KMP."

      This is like saying "KMP would be more attractive if Rich Kinder came to my door and handed me a big check."

      • 1 Reply to billyjoerobidoux
      • Kinder is a unique individual and a heck of a business man. He has grown Kinder Morgan well beyond what anyone could have envisioned in '96-'97 when he and Bill Morgan took control of what was then Enron Liquids LP (ENP).

        The fact that the GP is now privately owned and according to the last conference call, virtually debt free means that it would, in theory, be possible for him to do some sort of merger. Dan Duncan set the bar high with several transactions (the Gulfterra IDR give back, the capped splits at EPD and the conversion of the 50% splits at TPP into an equal amount of LP units at no premium. That was about as generous a transaction as I can recall. Kinder could easily convert the IDR take into an equivalent amount of KMP units based on the distribution rate and I suppose they could offer him a premium in order for him to give up his future IDR take.

        To me, the future for the MLP sector looks to be an IDRless single entity (see MWE, CPNO and soon to be MMP/MGG). I would expect more of the MLPs to be merging with the GPs.

 
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