The $30 million in additional cash flow is about $0.90/unit, AFTER taking into account the new ones. They're selling units at 16-20X cash flow and buying something for 8X cash flow. How is this not a slam-dunk great deal for HCLP holders? Am I missing something here?
you forgot the 3 million new units for management "incentives"
its unit price could face downward pressure in the rising rate environment
the idea with something like this is, assuming increasing economic activity/inflation is driving higher interest rates, that will also drive higher oil prices. in actual practice of course there are more variables, but that should work out more or less.
last 2 years we went from $0.35 to $0.40, then $0.40 to $0.44... if I were a betting man, I'd say $0.48 this year.
Look at it this way, today's decline = the 5% dilution from last week's approval of the new LTIP shares, right out of your pocket.
If you calculate the present value of the expected future distributions, each current distribution lowers it by about $0.25 - $0.30 (depending on your specific assumptions). So you should expect the unit price to decline by about that much. I did those calculations last year, but they're still in that ballpark. The number is pretty high because right now you're in the middle of the "bump" with the high distributions -- there's not too many of those left before the big decline starts.
Looking at it again, I think the difference is that the CC comments are only about coverage for the 4th qtr distribution, and you're talking coverage for the full-year. So the fault is certainly not in your math.
"Cedric Burgher - Chief Financial Officer
Thank you, John. Financial results for the fourth quarter were solid as demonstrated by adjusted EBITDA increasing to $72 million, or 4% above the third quarter and distributable cash flow increasing to $37.4 million, or 7% above the third quarter.
Driving this growth was increased production volumes, realized hedging gains and improved cash operating margins, offsetting lower commodity prices for the quarter. This led to a fourth quarter coverage ratio of 1.2 times, which on a fully diluted basis is 1.0 times."
"Cedric Burgher - Chief Financial Officer
The thing I would add is that we gave you the fully diluted coverage ratio of 1.0 times today which fully diluted just assumes that the step-up that had already occurred. With the accretive transaction for the buyout that obviously adds to that going forward and it’s also accretive not just this year but to distributable cash flow for years to come at a significant level if you model, say you model $500 million a year in acquisitions.
If you do the math you will see a significant amount of increase in our cash flow after distribution. And so we think this is -- really helps position as for that step-up and like I said we are at one time in the fourth quarter fully diluted. So we think we are well positioned to meet that step-up beginning -- at beginning of next year"
" A rough calc of coverage right now, fully dilutive is in the .9 range"
They were pretty clear in the conference call -- and repeated several times -- that the coverage ratio was 1.0 even fully diluted for the upcoming conversion, so not sure why you're saying 0.9. The reduced cash MIF adds about 0.06 to that ($7 million), so heading into 2014 they should be at 1.06. The new MIF units are a 4-6% annual headwind, but hopefully now new dropdowns and acquisitions will benefit common unitholders and not just mgmt. If unit price rallies to 10% yield or so with this GP buyout deal, up around $20, that will also help a great deal in new acquisitions being accretive to distribution ( compared to having to issue new units for $16).
Fidelity just buys shares on the open market though, they're not issued by the company--and you certainly don't get a discount.
every acquisition announcement is basically in invitation to short-sellers to sell short on the announcement, then cover a couple months later when they issue new shares at a discount, so I also like the ATM. in addition to the ATM I'd love to see a DRIP -- folks could choose to get new units (maybe at 5% discount to mkt price) and QRE gets another steady capital inflow. But I don't know if MLP is able to do this.
" It guarantees our distributions are covered before they get anything. "
And for that, they get 17% of the units? I agree that removing drag on the the cash available for DCF improves coverage of the $1.95, but it seems to more or less permanently eliminate the possibility of distribution growth since -- and please correct me if I am not understanding this correctly -- the issuance of new "incentive" units isn't a one-time deal, but will be ongoing whenever the "targets" are achieved? So most of the benefit of accretive acquisitions will be drained off by new incentive units?
"looks like we take about a 20% dilution in exchange for the MIF"
why is this a "great deal" for unit holders? All they need to do is cover the current min dist by 1.0 and you hand over 20% of your investment in the form of diluted shares?
It's not a big deal, IMO -- given his position, I would expect him to have his money concentrated at the GP level, with some money in each of the different stocks. I doubt he intends to send signals that any KMx entity is "better" than the other as they pertain to retail investors, so much as just maintaining a public show of support for each of them.
er, well, aside from today
We're basically back where we were last Friday. In hindsight, the buyers who ran it up in anticipation of earnings, were disappointed and sold. Ho hum...
You guys must not own Realty Income (O) --
"Realty Income Corporation (Realty Income), The Monthly Dividend Company®,
(NYSE:O), today announced its board of directors has declared an increase in the company’s common stock monthly cash dividend
to $0.1821667 per share from $0.1818542 per share. The dividend is payable on January 15, 2014 to shareholders of record as of
January 2, 2014. This is the 74th
dividend increase since Realty Income went public in 1994. The new monthly dividend amount
represents an annualized dividend amount of approximately $2.186 per share as compared to the previous annualized dividend
amount of approximately $2.182 per share. "
almost all of his holdings are KMI. He owns a small amount of KMP and KMP (well, small for him).
I am very long in KMR and worried.
KMR is still the safest of the bunch. At the end of the day, KMI is just a levered play on KMP/KMR -- it should go up faster when things are well, and down faster if things don't.
In practical terms, not really... last week we already had double the yield of competing MLPs. If it can yield 6%, it can yield 7; if it can yield 7%, it can yield 8; if it can yield 8%, it can yield 9. If we ever get genuinely bad news instead of just these stories, no reason this can't sell down to 10% yield or worse. Not picking on KMR, just being realistic about any stock or MLP.
I used to own QRE when it was priced in the 20s and people said the same thing all the way down. For the past year or so it's been yielding almost 12%. It was still yielding 10% when I sold it, and I couldn't be happier.
That said, I do think this yield is pretty safe -- almost 8% yield with 5% annual dist growth, and with Kinder managing the show.