You would have to ignore KMR entirely. All it owns are a special class of units in KMP, so there is no independent book value. If you're looking for total market capitalization of the group, you'd have to eliminate KMR's interest in KMP; otherwise you'd be doubling up.
Sorry, forgot the most important point. ARLP/AHGP (which I actually prefer) only make up 3% of my portfolio. And at the present time, I own almost zero other coal names - just a few units of RNO that I couldn't sell quickly enough. So I can afford to own it, risk-wise.
Coal began a secular decline years ago. Use of coal to produce electricity (the largest user of coal) has been dropping for years. And while the EIA projects that the decline will stabilize, at least until 2020, after the 2015 coal-fired power plant closings, I don't think there's much long-term hope for coal in the US. And frankly, I'm not so sure that that is a bad thing.
But at the same time, Appalachian coal miners have taken the biggest hit. In 2004, App mines produced 390 million tons of coal. I'd bet that number was close to 500 million tons 20 or 30 years ago. In 2012, production dropped to 291 million tons and the EIA projects that APOP production will stabilize at the 250 million tons per year level in the 2020s.
In 2004, Interior coal (about 2/3 Illinois Basin) was 146 million tons, growing to 180 million tons in 2012. And the EIA projects that production will continue to grow and finally stabilize, also in the 250 million ton per year area, in the 2020s.
So while coal is in decline, the Illinois Basin isn't. And that's a funny story because Illinois Basin coal is the dirtiest there is. But the EPA has forced so many utilities to install scrubbers that cheaper, dirtier, coal is now in demand.
So yes, 1. I don't want ARLP to ever open another coal mine after the 2 that are under construction finally open for full production. I want the cash flow simply returned to owners. I don't think that will happen - they are coal miners, and coal miners can always be convinced to open another mine. But I can hope.
And 2. I think ARLP (and probably FELP, another Illinois Basin coal miner MLP) are good bets for the next few years as long as they don't kill prices with over-production.
You pointed out the risk - you don't know the value of KMI at the time of closing, so you can't be certain that selling KMP today and locking in today's value is a good deal.
Both KMR and KMP are trading at small discounts to the exchange value. So you're giving up the KMP discount and getting the KMR discount. At yesterday's close, KMP's discount was $ 1.79 per unit and KMR's discount was $ 1.91 per unit. So by switching you pick up 12 cents on the exchange. But you are paying 25 cents more for the KMR units you buy versus the KMP units you sell, so the net cost would be 13 cents per unit, which is too small to worry about one way or another. I assume the commissions and the bid/ask spread aren't issues, but you will certainly lose a few pennies there as well. Still not material.
So if KMI's price stays the same until the exchange date, you will have avoided paying taxes on $ 1.79 per unit, less the costs of the switch. If KMI's price declines, you will have paid too much tax (still less the $ 1.79/unit). If KMI's price increases, you will have made a good deal. So there's one risk.
The other risk that you are taking is that you are bunching all of your KMP gain into your 2014 tax return. That will happen anyway in all likelihood, but you are giving up the chance that the exchange doesn't happen until early 2015, in which case you would have the opportunity to defer the tax payment for a year, or maybe split the gain between 2014 and 2015 by selling some of your KMP at the end of December and doing the exchange with the remainder. That is a very small risk, in my opinion, but it might happen.
So I don't think the switch is all that big a deal.
No. But just about every coal name is down today, and several (ACI, ANR) are down about as much as RNO. BTU is down more than 2%. The only coal names I follow that are up are FELP and NRP, and those not by much.
Whatever caused the run up this AM, it's gone now. Makes you wonder who buys all those shares without caring about the price.
You're probably right about the business and the cameras, but there are a lot of people who own VOXX at prices higher than today's price, and every time the stock moves up, someone takes the opportunity to exit.
KMR owners will not be taxed on the KMI/KMR exchange. Because KMR has elected to be taxed as a corporation, KMI is able to do a tax free (actually tax deferred) reorganization to acquire KMR. Also, KMI cannot get a tax basis step up in acquiring KMR, so KMI is not bothering to try to do a taxable deal.
But I don't understand your first question. Yes, selling KMP now will create a smaller taxable gain than your first sale because KMP and KMI have dropped in price. But no one can know what the taxable gain amount will be at closing because that depends on the value of KMI at that time. More importantly, selling now locks in your gain as a 2014 transaction. I know KMI is trying to get everything done this year (and I suspect they will succeed) but there is always a chance that the deal doesn't close until next year, which would defer your KMP gain on the exchange until 2015. Not likely, but it's a chance that you give up by selling on Monday.
And to the poster who asked about the wash sale rule, that rule only applies to sales at a loss, not sales at a gain.
Just focusing on the ETF's, aren't they simply following an index - Cushing or whatever? I didn't think they had any choice to sell or hold. As long as KMP continues to be in whatever index the ETF/ETN follows, I think they continue to hold. Actively managed mutual funds may be different, of course.
Lower prices haven't helped the Gulf Coast crack spread so far, because the price of product is dropping also. The spread is decent but not great, and it hasn't moved up in concert with the drop in crude prices. A few years back, the spread widened tremendously because of the spread between WTI and Brent, but the spread between those 2 has generally stayed within a $ 5 range for quite a while recently.
I don't think so. I just think that more investors (those who owned at the time of the sale of the oil & gas properties) will realize the need to sell as the year moves along. Couple that with low trading volume and coal problems, and I think the price will stay under pressure. But daily rises and drops could be anything. I doubt that my post woke people up to sell.
Then I would suspect there might be something wrong with your K-1. I checked the historical prices for KMP for 2009/2010 and the lowest it ever hit (per Yahoo, a dangerous source) was $ 40/unit. It did drop to $ 35 in late 2008. So if you bought around those times, maybe the total adjustments could bring you to zero.
When I sell an MLP, I usually ignore the capital account information anyway. I use my actual cost per the broker, and plug in the basis adjustments that are shown in the attachment to the K-1. If your accountnat did this, and remembered to deduct your passive loss carryover, then everything is OK. If you're really bored, you could go back to each of the K-1s you received each year, and add up the adjustments (tax losses and distributions) and see where it gets you. Again, I don't rely on the page 1 capital account for my tax basis, so I don't know how accurate it might be. I'm sure KMP does things correctly, but the numbers you cite make no sense.
RNO has not explained how it will allocate the large gain on the sale of its oil & gas interests. The gain should be more than $ 4 per unit. Either the gain gets allocated to holders on day one of the month the sale closed, or else its gets allocated to people that owned RNO in January (the sale was effective January 1, although it didn't close until months later. Either way, there's a bunch of investors that will get a large Section 1231 gain/capital gain allocated to them, and they will need to sell their RNO units before year end to create an offsetting loss. So my guess is that we see even more weakness than coal miners generally between now and year-end.
You're comparing apples to oranges. If you had sold at the $ 80.34 price, you would have owed taxes, and you would have netted less than the $ 78.47.
And forget the board; the deal is up a vote of the unit holders. So don't blame them, blame the owners if they approve the deal.
And they will approve it. I'll let you in on a well-known secret: since the deal was announced, trading volume is up, as unit holders try to lock in their gains, and arbs buy the units (and short KMI) looking to lock in the spread between KMP's trading price and the deal price. So they will vote for the deal, as will KMI's 8% or whatever units, as will the institutional holders who don't pay the tax directly, and the deal will be approved. I doubt that KMI/KMP will schedule the vote until there's been enough change in ownership to guarantee approval. That's pretty much what Rich Kinder did when he took KMI private, altho he had to sweeten the deal slightly. I don't know if he can sweeten the deal this time to any great extent without killing his supposed rationale for the deal. But wait a while and you may get an extra dollar or two when the deal closes.
There is no way to estimate the number. Even KMP couldn't estimate it for you without a lot of work, which they aren't going to do.
You say that when you sold last year, your cost basis per the K-1 was zero. Several of my clients own KMP, and neither was a real long-term holder, so they should be close to your position. Going to zero in 4 years sounds impossible, unless you sold some units during the 4 years. I'm guessing that you sold some units during the 4 years.
Your tax basis starts with your cost, and is reduced by both the distributions you received and by the losses that were passed through to you while you held the units. Mostly, this would be the loss on Line 1. I'm guessing that in 4 years, your distributions reduced your basis by maybe 30% (7.5% yield per year). I can't believe that your Line 1 losses (essentially your passive loss carryover) amounts to 70% of your cost after 4 years.
So before I blather on, did you have partial sales?
The MLP will report the accumulated basis adjustments to you in an attachment to the K-1 in the year you sell. It will also tell you how much ordinary income was generated by the sale.
You'd have to ask management what they learned. Investors in AI learned that after a company's operations tank, and it runs up a loss carryover in the hundreds of millions of dollars, it can give up its REIT status and still pay no taxes. Plus it can then pay qualified dividends, which no other mortgage REIT can do.
As to the level of cash/debt, AI has always been conservative in using leverage since I started buying some. Which was long after 2009.
If you search this board a bit you will find older posts that totally trash management for the 2008/2009 debacle. Top management is the same now as then. But since I didn't own any AI while it tanked to the point of needing a 1:20 reverse split, I'm willing to cut them some slack.
Yes. If you follow the various MLP boards on Yahoo and Investor Village, you will know that there is a serious lack of communication between the brokers and the MLPs which means that investors often have to deal with the K-1 support people when they get their incorrect K-1s. Sometimes it's as simple as when you tell your broker to see a specific lot of units, but the MLP always does first-in, first-out until you tell them differently. More importantly, someone posted about KMP recently that he moved his father's account between 2 brokers a few years back, and the new broker picked up the current value of KMP as his cost. Maybe a tax planning opportunity there?
Anyway, yes. There is no guarantee that the MLP will know that the move in KMP units between you and the person you gift the units to was anything other than a sale. (Bad grammar, but it's early.) The K-1 for both the donor and the donee would be wrong in that case. I suspect that's a common occurrence.
You could be right; AI doesn't give much detail until the 10-K. But I think it's something different.
Capital losses only have 5 year carryovers, whereas operating losses get 20 years. Over the last 3 years, AI has written off more than $ 100 million of deferred tax assets relating to expiring capital loss carryovers, so as I say, it could be the same this year.
The reasons I think it's something different is 1. The reduction in the deferred tax asset took place in Q2. When capital loss carryovers expire, they expire at the end of the year, so I would expect write-offs to take place in Q4. This isn't a hard rule because they could easily conclude now that the losses will expire at year end, and write them off now. That would be unusual, but it could be what happened. 2. There was nothing unusual in the Q2 tax rate - it's in the mid 35-40% range. If they had written off $ 10 million of capital loss carryovers, I would expect the Q2 tax rate to be much higher. and 3. In the last 10-K, AI disclosed some unusual (at least to me) financial deal they set up that generated a $ 68 million capital gain, in order to use up that much of their carryover before it expired. The gain was not booked as GAAP income, it was just recognized for tax purposes. So I'm guessing maybe they did another of those deals to use up more of their carryovers. But I don't know, obviously. All I know is that the deferred tax asset now makes up a little less of AI's book value, which is a good thing.
But until the 10-K comes out, the answer could be just about anything.
Of course you're right about the deferred tax asset being discounted in the market. The deferred tax asset isn't worth anything to AI itself; it could just as easily avoid all taxes by re-electing REIT status. It doesn't need the loss carryovers to accomplish that result. The real value of the deferred tax asset is that it allows AI to remain a C Corporation and pay out qualified dividends. So the real economic benefit of the loss carryovers, etc is for the shareholders.
The deferred tax asset is valued using a tax rate of somewhere between 35% and 40% (depending on what state tax rate they use, which they don't disclose clearly). The value of qualified dividends is worth at most 20% to shareholders, even in the highest tax brackets (39.6% vs 20%), so I think it's appropriate to adjust the value of the DTA by at least half, in economic terms, even if this isn't GAAP. That would get you to an adjusted book value of around $ 28, which is still a little high, since the qualified dividends will only be realized over a period of years.
And at June 30, the DTA was worth around $ 7.60 per share. They apparently used a lot of it in the first half, which was good to see.
I suspect the company knew exactly what it was doing, both in March and today, in issuing shares at the prices it did.