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Kinder Morgan Energy Partners Message Board

  • socialdis92 socialdis92 Jul 24, 2012 11:02 PM Flag

    Question on DCF

    I know eps is irrelevant with MLP's but KMP DCF is $366 million and average shares outstanding are 342 million which equals DCF of $1.07 per unit. They declared a distribution of $1.23 so where do I find the additional $54 million or $0.16 per unit between the DCF per unit and the upcoming distribution?

    These numbers come from the latest sec filing and I am just trying to understand.

    Thanks for the help.

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    • Don't misunderstand me. I think Rich Kinder is one of the smartest businessmen around, and with 1 possible exception, I have great respect for his integrity. The only thing I have concerns about is his LBO of KMI several years back (I was a shareholder in KMI at the time), and it resulted in a disproportionate portion of KMP's earnings accruing to the LBO members. I would have done exactly the same thing if I were in his place, but Then again, I don't always act the way I think I should, either. :) ).

      I know KMP and EEP say they have enough cash flow to cover all shares. But think about this - over the past 10 years, KMP has avoided having to pay cash distributions in the amount of about $ 2.5 billion because of the KMR structure. There is no need to finance those distributions, and no interest expense associated with them. If KMP had paid cash distributions to KMR over the years, either its DCF (which is computed after interest expense) would be lower, or its units outstanding would be higher. Would DCF still be enough to cover cash distributions on all units? I don't know. I suspect the answer is yes - the reinvested i-units are the equivalent of the extra KMP units it could have sold over the years, so maybe it's a wash.

      But that's just a small thing, except for the people who apparently hate Rich Kinder. After the KMI LBO, I could have moved over to KMP or KMR, but I thought I would do better with EPD, which has also done well.

      But between KMP and KMR, I think KMR is the better investment as long as you are a long-term holder and don't need the cash distributions for a year.

      FWIW. Have a good weekend. It's pouring where I am, which is why I'm on this board on a Saturday morning.

    • jrad,

      I did some research and the good news is that KMP appears to have distibutable cash flow sufficient to cover distributions to all unit holders. In the 2011 year-end letter Kinder stated distributable cash flow was $1.53 billion. In 2011 KMP distrubuted $1.054 billion to unit holders. Adding to that the $4.61 per unit distribution for the 95.2 million average number of i-
      shares (held by KMR) results in a total of $1.493 billion if cash had been distributed to all unit holders.
      This is a distribution coverage of about 103%. In effect, KMP recognized the need to generate sufficient cash flow to cover all shares even though no cash is distributed to the KMR holders. (View this as the equivalent of a dividend reinvestment plan).

      I am not sure of KMP's definition of distributable cash flow. I start with operatioal cash flow of $2.873 billion and subtract out the $1.19 billion distributed to the general partner. This leaves a balance of $1.673 billion, which is $153 million more that the $1.53 billion viewed as distributable cash flow by KMP. Hopefully, the $153 million was enough to cover those capital expenditures necessary to maintain existing assets. This is possible considering that total capital expenditures were $1.199 billion.

    • Round numbers, KMP has 235 million common units outstanding, on which cash distributions are paid. KMP also has about 100 million i-units outstanding, all owned by KMR, which do not pay cash distributions. Instead, KMP issues additional i-units to KMR approximately equal to the value of the cash distributed on the common units (on a per-unit basis).

      Confusing? Essentially the total units outstanding equals common + i-units. There's your 340 million units outstanding. But only the common units get cash distributions.

      Hope this helps.