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Kinder Morgan Management, LLC Message Board

  • purplespyderman purplespyderman Mar 8, 2013 2:02 PM Flag

    KMP - KMR discount is under 4%

    Close to the lowest differential I have seen for a while.
    Which one is out of whack ? is KMP cheap or is KMR expensive? or is this a new normal as more people figure out that KMR at a discount is a better deal?

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    • Just a guess, maybe due to dilution due to merger with compano. I bought compano because the merger is immeninent. It will be swapped.

    • not sure I understand why anybody would give a thumbs down to this question.
      Its a basic question on an observation and I am trying to undertand why the differential is at such a recent historic low. Even today the differential at 89/86.55 is small.

      • 2 Replies to purplespyderman
      • seebelow561 your mom can spend the income from KMP tax free, and still leave it for heirs tax free. When Investors put KMR in a sheltered retirement account they lose the long-term capital gain treatment that is built into KMR for regular investors.

      • The rapid narrowing of the KMP/ KMR spread has only been happening since March 19, a week ago when it went from 6% to 3%. The entire MLP sector has risen 4% in that time with KMR better than that and KMP lagging a little. Today is the first day in a week that KMP has outperformed KMR. Still the premium is only 3%.
        Its interesting to look at the historical spread. It was an unbelievable 53% at the market low in 2009 and has narrowed ever since. The spread was down to 25% two years ago and now it is 3%.

        I usually buy whichever one is on sale- KMP when the spread wobbles low, KMR when it is higher. Both are long term winners.
        Since the most unique niche for KMR is IRA/ pension plans it seems logical that it is plans being funded and invested prior to April 15 that is driving the rapid rise and spread narrowing last week. But to the contrary, the spread widened for KMP last March.
        There is also institutional money being allocated from the MLP funds which are getting a lot of attention lately- and they prefer KMR. Thats likely the real reason for the narrowing now.
        Could also be money coming out of KMP after the 86.35 offering followed by the stock trading below 86.35 for a couple weeks thereafter.
        I keep looking at EEQ as an additional investment but just cant do it- KMP/ KMR are a lot better than Enbridge.
        I have never understood why KMP trades at a premium at all. I would pay a premium to buy KMR and be able to completely control the income stream I take.
        On the other hand, when I put some of my mother's money into Kinder Morgan I picked KMP- she just wants auto pilot and I assume most investors are like that.

        Sentiment: Strong Buy

    • KMR should sell at a premium.