What I'm saying is that they shouldn't announce that they will reduce the distribution to "something" and then leave it out there hanging.
Just say it will be around $.40 or whatever and move on. Most people are fine with reducing the distribution -- it's just that there is no guidance as to whether it will be $0.15 or $0.40 or $0.60. Not smart.
Yes, even a moderately competent management team would understand that uncertainty is their worst enemy.
They don't even need to announce the exact distribution amount -- just a possible range. $0.35 to $0.40, $0.40 to $0.50?
I agree with DLTNX. DoubleLine is outstanding. But if you don't mind parking $100K in one fund, I'd go with DBLTX -- It's the exact same fund as DLTNX but a much lower expense ratio (0.49% versus 0.74%, or about $250 a year). There is a $100K minimum to purchase.
I'd put half of it in some well-run bond funds with low expenses, like DBLTX (yield 8.49%) and PIMIX (yield 6.16%). In a bad economy, these will do well while MLP's could get killed. On the other hand, if commodities go up MLP's should do better while the bond funds might be a drag. Combined they hedge each other out. The bond funds have very low beta, while MLP's are high beta. I'd advise you to be conservative and spread your risk.
My understanding is that the $0.40 to $0.60 is a "base rate", which will be combined with a variable component to determine the actual distribution.
The variable component will, of course, vary with commodity rates. Barclays is projecting oil of $80 and gas of $6. Based on those numbers, they say EROC will pay a distribution of $0.60 to $0.75.
Again, they could be wrong. Who knows where commodity prices will be in nine months?
FWIW, here's what Barclays says, "In our most recently published note, we estimated $0.65-$0.80/annualized distribution supported by EROC's current asset base."
Take the low end at $0.65, and that would mean a yield of 10% at a price of $6.50.
Of course Barclays could be wrong.
Agreed. I bought today. Not only is the offering not dilutive, but it puts more units in retail hands, making them more "sticky".
Of course the unit price might stay around $20.50 as the units find new owners, but I don't mind getting 7% while I wait.
I just started buying MLPs again a few months ago (almost all investment-grade), and now I have over 50% of my "fixed-income" weighting in MLPs.
Here is why I like them now:
- If economy sputters again, MLPs offer safe steady distributions which should limit down side.
- If we get higher inflation, MLPs should do well. Although they technically aren't supposed to be commodity-related, they often trade like they are. And of course distributions typically grow every year.
- MLPs just showed that they can survive the worst debt crisis in 80 years and still arrange financing.
- Most importantly, next year the 15% tax on dividends goes back to 39.6% for high-income filers. That should drive investors to tax-deferred MLPs. Of course Congress could always get together to change this (yeah, I know, you can stop laughing now).
I am considering starting a position in ETP here, and I'd like to reasonably calculate a fair price to pay based on the dilution.
Here is how I calculate the dilution:
New shares = 8,625,000 (7.5 million + 1.125 million for underwriters)
Existing shares = 175,770,000 (from Key Statistics on Yahoo)
Dilution = 4.907%
So based on a dilution just short of 5%, how far down does ETP go in the next few days? Does it go down the full 5%, or was some of the dilution already priced in? Thanks in advance for your analysis/opinions.
OK, I found the $954 million figure in the supplemental to the 1Q report. I also see that their payout ratio is only 60% of FAD, which is really good.
But then why does S&P rate their debt as B+, way below investment grade? And why is their preferred stock rated CCC+?
My best guess is that the $954 million "book value" is what they paid for the properties, and the actual market value is now considerably less. If anybody has a better theory, I'd love to hear it.
Thanks, that's good info. Can you tell me where you found the figure of $954 million for the cost basis? It would also be interesting to know what the actual market value is for their properties today.
The problem is that they are very highly leveraged. Take a look at their balance sheet. It you divide their equity by their (long-term debt + equity), it comes out just north of 15%. You can't buy a property today with only 15% equity. Lenders won't want to roll over their debt without more equity, which probably means a sale of shares. Selling shares means dilution of FFO/share and a drop in share price.
If all goes well, they can wait a year or two to sell shares, and hopefully at a higher price. If things don't go well, they will be forced to sell shares when they don't want to. High risk, high potential reward I guess.
Well, most people buy REITs to share in the funds from operations. Now FFO per share is down 18%. DEP (an MLP) recently did an offering, and the shares have dropped more than the dilution amount.
On the other hand, I doubt HPT drops 18% tomorrow because at least some investors already assumed a share offering would be coming, so it should be at least somewhat priced in.
With shares for underwriters, total share offering is 17,250,000. Divided by 94,000,000 current shares, that's dilution of %18.35.
So, to break even, the shares would need to trade tomorrow around $10.86.
One I find interesting is TTO. It's an ETF of mostly small-cap gas pipelines. Currently trading at a discount to NAV of around 48%. Just nibbling so far. Love to hear anyone's thoughts on this one.
HOUSTON, June 2 (Reuters) - Kinder Morgan Energy Partners LP (KMP.N) expects to close on some asset purchases in 2009 as the big pipeline company combs the recession-racked energy industry for bargains, the company's chief executive said on Tuesday.
"I think it's a good time to add," Rich Kinder told Reuters Global Energy Summit. "We've found some opportunities in the terminal areas."
Kinder sees no attractive large-scale pipeline assets on the auction block, but smaller companies with debt issues are offering some attractive terms, he said.
From the 2Q release:
"The results for the 2008 periods also reflect . . . a non-cash charge of $19.9 million, or $0.21 per share, to record a reserve for the straight line rent receivable recorded in periods prior to the three months ended June 30, 2008. The straight line rent amounts relate to HPT’s lease with TravelCenters of America LLC (AMEX:TA - News) for 145 travel centers."
So, the 2Q FFO includes a write-down of $19.9 million for uncollected rents from TA. If future FFO write-downs related to TA are $15 million per quarter ($5 mil/month), then the forward FFO will actually be higher than the current $1.04. So the coverage of FFO ($1.04) to dividend ($0.77) is still very strong, even after reducing FFO for deferred rents from TA.
Let me know if I'm missing something.
I agree with you -- judging by AH trades, probably down 10% or more tomorrow. I might even put in a buy below $20, just for grins.
Long-term, HPT has this going for them:
- Yield of over 15%, assuming price decline tomorrow.
- Dividend covered by FFO, even assuming $5 million monthly in deferred rent.
- Improving business for TA (are all truck stops in U.S. really going to go out of business?)
- New arrangement keeps TA with plenty of cash.
- Oil down under $115/barrel, and gas prices following. If this trend continues, TA's troubles are over.
- If not, and TA defers rent, HPT gets 10% of TA, so when margins improve so does HPT's cash flow.