you misunderstand -- the point of my comment was just how often HCLP has been going up like this -- a year ago it was in the 20's. wasn't at all trying to be negative towards you.
kind of a broken record, isn't it? just copy and re-paste it every couple of weeks.
probably nothing more complicated than the overhang from the recent offering has been absorbed.
It's not *dilution* it's a couple million more shares hitting the market on the sell side. supply vs demand, that old story. If someone is selling millions of shares at one time, the price gets discounted to absorb them.
a secondary factor is people may have been spooked because it was insiders -- in fact, the controlling partners -- who sold the shares, which never looks good. personally i think mgmt could have managed this better, but on the other hand I took advantage of the dip to buy some more shares yesterday, so ultimately I'll make a couple bucks from it.
"over time maybe they will get included in DJIA!"
One of the drivers of the share price has to be index funds buying more shares. For every MLP fund/ETF that needs to sell KMP, there's a multiple of that needing to buy KMI.
The new shares this quarter had an effective price of $75 and change. So already a +33% gain when they hit my brokerage account -- the cherry on top of a quite profitable week for KMR folks.
" I'm concerned about what will happen after the dust settles. "
Here's what we've learned:
1) Kinder is an absolutely ruthless competitor. KMP unitholders took it right up the #$%$ for the greater future glory of the whole KMx empire. (KMR holders, by contrast, have done much better thanks to the shield afforded by our C-Corp status, but that is pure dumb luck on our part.) I think hedge fund sharpies are really going to think twice about future bear raids. You need to keep your money right next to his -- can you tell he had all of his money in KMI, not KMP?
2) I think you can take your 10% future div increases to the bank. Did anyone else notice the slide in the investor presentation where he recaps the div forecasts for THE PAST THIRTEEN YEARS and compares them to actual results? Who on earth does that besides Kinder?
3) Investing in an MLP opposite the GP is riskier than we thought. The GP is clearly the way to go when given the choice. ETP holders should take notice.
4) This has been the most well-disguised dividend cut in corporate history. Our current dividend has been cut by 22% and the stock price is up by a third.
5) There's no doubt in my mind that Kinder already knows the next move he wants to make. No question he's thinking a couple moves ahead on the chessboard. It's murky to us, not to him. Kinder's cost of capital has been slashed, you have to assume he has a good idea what to do with it.
They're already paying distributions on those units, just look at the last income statement -- they already report "fully diluted" numbers to account for those units:
" The limited partners` interest in net income of $30.5 million for the second quarter of 2014 represents earnings of $0.94 per basic weighted average common * and subordinated unit* outstanding during the period. For purposes of calculating earnings per unit, $5.6 million of limited partners` interest in net income was allocated to the holder of incentive distribution rights and the Class B units, resulting in reported basic earnings per unit of $0.77 per common and subordinated unit.
... Distributable cash flow attributable to the Partnership for the second quarter of 2014 of $29.5 million corresponds to distribution coverage of 1.54 times the $19.1 million in distributions ** to be paid to common and subordinated unitholders ** on August 15, 2014.
Nothing "stealthy" about it, it's all right there.
"I'm not seeing any advantage to shareholders"
I'm seeing the price of my KMR shares breaking $100 as I'm typing this. That's a pretty compelling advantage right there.
seems simplest to just buy back the calls and remain fully invested -- KMI seems to be experiencing some nice accumulation now, even a single day out of the stock might cost you a couple more $$/shr like today. Plus KMR is still trading at a discount to the 2.489 KMI shares you'll collect.
be interesting to see what happen to the warrants in another year (or less) when publicly traded options are available with similar expiration date and the two are trading side-by-side, especially if Kinder is buying warrants but not the options.
If KMI delivers on the 10% annual div growth, the div will increase anywhere from 10-15% between the Jan 16 calls expiration and the 2017 warrants -- by itself, that could accrue an extra $6-$10 to the stock price and hence warrant value in that period. So it seems like the value proposition is, if you buy the 2016 calls now instead of the warrants, in Jan 16 how much will you need to pay for a May 2017 call with a $40 strike, vs the $1.60 cost now. Am I missing something?
I think we're back to the situation where if you're in a tax-deferred acct, KMI makes a lot of sense, and in a taxable acct, EPD makes a lot of sense. You certainly can't go wrong owning some of both.
Can't say Duncan is any better than Kinder EXCEPT Kinder obviously blew it when he didn't jump on GP consolidation bandwagon, so this is making lemons out of lemonade. I don't EPD but I do own MMP, which is another company that consolidated the GP years ago and has never looked back.
"the courts will demand that all the MLP holders receive equal treatment"
As a KMR shareholder, that's just more money for me, so I won't object -- they can't increase the package for KMP without also increasing it for KMR -- but doubt it will happen. This is where KMP unitholders need to re-read the "Risk factors" section for MLP limited partners and see what they agreed to.
The original KMI deal in 2007 or so illustrates perfectly the difference between being a shareholder in a public C-corporation and a limited partner in an MLP.
depends on your cost basis... if you have a large embedded capital gain, you should buy back the calls and hang on till you get the KMI shares. This will not only avoid realizing a taxable gain on the KMR shares, but you will get a large ST loss on the options that you can deduct against regular income, so it's worth 33% or more depending on your tax situation. If getting called at 80 results in a loss, go ahead and let them get called away... you can then buy KMI with the proceeds and avoid it being a wash sale.
The difference was that the offering in April was to finance a significant expansion that meaningfully added to the company's value. This offering is the company's controlling partner dumping shares for cash, signalling to the market that this is a good time to sell.
"Yes, we get a vote on this"
Actually you don't get a vote -- you're a limited partner, not a shareholder, you have very few rights. The GP basically can do what it wants.
What you have to respect about Kinder is the guy absolutely has balls. In all the million post-Hedgeye articles, no one ever came up with this idea. Guy thinks big, thinks out-of-the-box, and not afraid to go for it.
$102 pre-market. The most underappreciated quote of the year in the business world was Kinder after the hedgeye debacle: " You keep selling, I'll keep buying, we'll see who wins" and we see the result. Would love to have seen Kaiser's face when this deal was announced.
That's the smart way to play it. according to my spreadsheet, if distributions come in at 80% of projections, this is currently priced at about 12% IRR for remaining life of trust (with payback of your initial investment in 6 years or so), so your 9% expectation is reasonably conservative.