Crosstex Energy Inc. Message Board
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Enlighten me please
Why do the general partners shares do so much better than the limited partners units ? ie. ETE NRGP XTXCI.. An explanation or reference to a prior post would be appreciated... Thanks.
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GPs tend to outperform MLPs because of the incentive distribution rights (IDRs). In the "high splits" the GP gets 50% of the incremental distributable cash flow with the other half going to the MLP. So, think about it. The MLP is putting up 100% of the incremental investment capital and getting 50% of the incremental cash flow. The GP is putting up no capital and getting a 50% carried interest in the upside of the MLP.
- 2 Replies to timhotep
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Thanks for the reply. As I wasn't quick enough to get XTXI I'm trying to look at ETP and ETE. It looks to me that it just comes down to the number of shares involved.
Roughly speaking there are about 110M shares of ETP and 140M of ETE. Calculating on the 50% distribution and 33% ownership of ETP, ETE looks to get about $ 1 for ever $ 1 paid by ETP. Does that sound right ??? What am I missing ?? -
Actually the GP puts up 2% of the equity, so if they finance it 50% equity and 50% debt, the GP must put up 1% of the total purchase price.
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The short answer is leveraged. Gps are a leveraged play on the MLPs. You can have the (hopefully) consistent income growth of the MLPs or lower income now and faster dividend growth with the GPs. Of course what the price per share does is anybody's guess as the GPs are getting pretty highly valued with the exception of MWP. To learn the concepts, go back on this board and MWP and read the posts by RRB1981. That will get you started.
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The GP doesn't necessarily always do better than the LP. Paste the link below in your address window. It's a comparison of KMI and KMP. Their performance is nearly identical.
finance.yahoo.com/q/bc?t=my&s=KMI&l=on&z=m&q=l&c=kmp
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