TheStreet.com  Oct 14  Comment 
NEW YORK (TheStreet) --aKinder Morgan Managementa reports third-quarter earnings after the market closes Tuesday, and here's what analysts are expecting from the limited partner in Kinder Morgan Energy Partnersa . The consensus estimate calls...
SeekingAlpha  Sep 29  Comment 
By Dividends#1: Introduction: I have presented 2 portfolios regarding dividend growth investing. Portfolio #1 consisted of 10 stocks with a starting value of $100K. I allowed for an annual contribution of $6,500. I posted in an instablog in...
SeekingAlpha  Sep 16  Comment 
By Dividends#1: Introduction: I recently wrote an article titled "A Dividend Growth Portfolio For New Investors And Retirees Yielding 4.4%, Part 3." In that article I described why I bought Kinder Morgan Management (NYSE:KMR). See that...
SeekingAlpha  Sep 13  Comment 
By Dividends#1: Introduction: I purchased (NYSE:KMR) on 9/11/2014 for $93.36. That transaction added 69 shares to the portfolio. I also added 1 share of (NYSE:MO) for $43 with the cash left over. I had $6,500 available in cash for 2014 and...
Forbes  Sep 9  Comment 
Looking today at week-over-week shares outstanding changes among the universe of ETFs covered at ETF Channel, one standout is the First Trust North American Energy Infrastructure Fund (AMEX: EMLP) where we have detected an approximate $84.1...
DailyFinance  Aug 12  Comment 
The Law Offices of Vincent Wong are investigating potential claims against the Board of Directors of Kinder Morgan Management LLC(NYSE:KMR) (“KMR”) in connection with the sale of the Company to Kinder Morgan Inc. ...
StreetInsider.com  Aug 11  Comment 
PharmAthene, Inc. (NYSE: PIP) 56.7% HIGHER; announced today that on August 8, 2014, the Delaware Court of Chancery issued a Memorandum Opinion and awarded to PharmAthene lump sum expectation damages for the value of PharmAthene's lost profits for...
SeekingAlpha  Jul 26  Comment 
By Dividends#1: Introduction: Why is Kinder Morgan Management, LLC (NYSE:KMR) a better choice for our portfolio? Because we hold KMR in our taxable account. It is our only position in the taxable non-retirement account. My wife and I will...
SeekingAlpha  Jul 18  Comment 
Kinder Morgan Management LLC (NYSE:KMR) Q2 2014 Earnings Conference Call July 16, 2014 4:30 pm ET Executives Richard D. Kinder - Chairman and Chief Executive Officer Steven J. Kean - President, Chief Operating Officer and Director ...


Kinder Morgan Management LLC

Kinder Morgan Management, LLC (NYSE: KMR) is a limited partner in and manages and controls the business and affairs of Kinder Morgan Energy Partners (NYSE: KMP), one of the largest publicly traded pipeline limited partnerships in the United States. KMP is an energy transportation and storage company and owns an investment in or operates approximately 46,000 miles of pipelines and 180 terminals in North America.

Kinder Morgan pipelines transport natural gas, gasoline, crude oil, CO2 and other products, and KM terminals store petroleum products and chemicals and handle such products as ethanol, coal, petroleum coke and steel. [1] [2] [3]

Kinder Morgan Management LLC is a limited liability company whose shares trade on the NYSE under the symbol "KMR." Since its formation, “to facilitate institutional ownership of KMP equity," in 2001. [4] KMR has delivered an average annual return to shareholders of 15%. Higher if bought when trading at a discount. [5] The underlying KMP has delivered average annual returns to unitholders of 24% since 1996 (assumes that distributions are reinvested). [6] [7] Over the past 15 years, KMP has increased quarterly distributions 42 times. [8]

The company plans to capitalize on growth in domestic natural-gas production from shale to increase dividends to its shareholders.[9] Kinder believes there are exceptional growth opportunities, as there is a need to build additional midstream infrastructure to move or store oil, gas and liquids from the prolific shale plays in the United States and the oilsands in Alberta, along with increasing demand for export coal and CO2. [10] [11]

KMR has no properties of its own, and its success is dependent upon its operation and management of KMP and KMP's resulting performance. [12] KMR does not pay distributions on its shares in cash but instead makes distributions on its shares in additional shares or fractions of shares. [13] [14]

KMR usually trades at a discount to KMP, raising the yield to buyers of KMR instead of KMP. [15] [16]

Distributions to KMR shareholders, which are paid in the form of additional shares, are based on the amount of the cash distributions paid to KMP unitholders. Because distributions of additional KMR shares are made proportionately to all of KMR shareholders, distributions are not included in the gross income of KMR shareholders for federal income tax purposes, and no Form 1099 will be issued. [17] [18]

The retained capital from KMR distributions gives KMP the potential to become self-funding, with KMR share buybacks if quarterly dividends exceed equity funding needs. [19] Over $625 million of the equity required this year is expected to be funded by KMR dividends. [20]

What Kinder Morgan does

Kinder Morgan accumulates positive cash flow projects that will be accretive to dividends. That is, each project increases the pay out to shareholders. The more they spend, the more they pay out. They buy things that will last a long time, sell the capacity, and pay it off in a short time. Then they resell the capacity, over and over again. It is a take, or pay business to customers.


 Organic growth that does not require any investment

 Expansion projects ~ Eleven billion dollars over the next five years

 Acquisitions ~ Drop downs from KMI and new opportunities

Richard Kinder, Chairman of the Board and Chief Executive Officer takes a salary of $1 a year and accepts no stock options. “Our goal is getting everybody to think, how would I spend the money if it was my money?' ... Whatever I do, if it is good for shareholders, it is good for me, and vice verse.” [21]

Four Ways to Invest: KMR, KMP, EPB & KMI

Kinder Morgan is the third largest energy company in North America. The four Kinder Morgan companies Kinder Morgan incorporated KMI, Kinder Morgan Partners (KMP), The Kinder Morgan management company KMR, and El Paso Pipeline Partners EPB, have a combined value of approximately $100 billion. They own an interest in or operate approximately 75,000 miles of pipelines and 180 terminals.

Kinders's large, diversified portfolio of assets operates like a giant toll road on energy. KM primarily receives fees for transporting, storing and handling various energy products such as natural gas, refined petroleum products, crude oil, ethanol, biodiesel, coal, steel, petroleum coke and CO2. KM customers include producers, shippers, oil companies, utilities and more with limited exposure to commodity prices. [22] [23]

The only cash flow that the management company KMR, gets is from its ownership of Kinder partners KMP i-shares. Investors in KMR, do not receive cash distributions, but receive additional shares proportional to the ownership interest they have in the stock. The cash distributions for KMP and KMR, are equal; the only difference is that KMR distributions are paid in the form of additional shares at market price, reducing the need for KMP to raise public equity, or borrow funds.

KMP pays out all of its available cash. The only way they can get fresh capital is to borrow it, or sell something. KMP has to get the cash up each quarter to pay dividends. Some they pay to KMI the holding company, some goes to unitholders. Rather than receiving and distributing cash, KMR, receives cash and distributes a stock distribution in shares, to KMR owners. KMP uses the cash that would have been paid out as dividends, to buy assets from KMI, and finance acquisitions internally among other uses. [24]

KMR 2013 projected distribution is $5.28 a share which represents a 6.0% growth over 2012. [25]

Asset Footprint

 Largest natural gas network in U.S. [26]

Connected to every important U.S. natural gas resource play, including: Eagle Ford, Marcellus, Utica, Uinta, Haynesville, Fayetteville and Barnett

 Largest independent transporter of petroleum products in U.S. [27]

 Largest transporter of CO2 in U.S.

 2nd largest oil producer in Texas

 Largest independent terminal operator in U.S. [28]

 Only oilsands pipe serving West Coast [29] [30]

Expansion under way to increase capacity [31]

Project backlog

Over $12B of growth opportunities over next 5 years in these five segments

 Natural Gas Pipelines

 Products Pipelines

 Terminals

 CO2 – S&T – Enhanced Oil Recovery

 Canada Oilsands pipeline expansion [32]

Additional growth opportunities

Further LNG liquefaction build-out

 EPNG oil conversion

 Further natural gas expansion to Mexican border

 Various other expansion and conversion opportunities

KM wants to build new terminals to export liquefied natural gas to benefit from the increased fuel prices in global markets where it is nearly five-to-six times the U.S. price, to capitalize on the domestic natural gas shale boom. [33]

 Dropdowns from KMI

 Acquisitions

KMP-KMR Diversified Cash Flow

Natural Gas Pipelines

 62% interstate pipelines

 19% intrastate pipelines & storage

 19% gathering, processing & treating

Products Pipelines

 55% pipelines

 45% associated terminals & transmix


 56% liquids

 44% bulk


 27% CO2 transport and sales

 73% oil production-related [34]

Kinder Morgan Canada

 100% petroleum pipelines [35]

$30 billion invested

 Natural Gas Pipelines – $14 billion

 Products Pipelines – $4.9 billion

 Terminals – $5.2 billion

 CO2 – $4.7 billion

 Kinder Morgan Canada – $1.3 billion [36]


 KMR shares are pari passu with KMP units

 KMR dividend is equal to KMP cash distribution, but paid in additional shares; effectively a dividend reinvestment program.

The calculation for the share distribution is you take the KMP quarterly cash distribution per unit, divided by KMR's 10-day average price prior to ex dividend date = fractional share paid from KMP to KMR owners for every KMR share owned. [37]

 Like KMP units, KMR shares are tax efficient — but with simplified tax reporting (no K-1s, no-1099, and no UBTI)

 KMR is a significant entity

 KMR market cap = $9.6 billion, ~30% of total KMP capitalization

 ~$30 million in daily liquidity

 KMR has generated a 15.3% compound annual total return since 2001 IPO, vs. 15.1% for KMP

 KMR trading at a discount to KMP

 Potential for KMP to become self-funding through KMR distribution

 Possibility of KMR share buybacks if quarterly dividends exceed equity funding needs

 Insiders prefer KMR ($14.7 million) to KMP ($4.5 million) [38]

Midstream Two-Step

Generally the general partner KMI buys a corporation with lots of pipeline assets. Then the corporation sells the assets to its own master limited partnerships KMP, and El Paso EPB. The drop-downs move the pipelines to a more tax-efficient partnership structure, and are priced at a level that guarantees cash flow accretion for the partnerships. The corporation takes the proceeds from the asset sale and pays down its acquisition debt, with a goal of holding zero parent-level debt upon completion of asset drop-downs. It works as long as a general partner doesn't pay more for assets than it can charge its partnerships and still have the drop down be cash flow accretive. [39]

Reasons for the Discount

The shares of KMR often trade at a discount to the partnership (KMP) just as a closed-end fund shares might trade at a discount to its net asset value.

(1) Cash Is King: Ceteris paribus ~ KMP pays its principle in back sooner.

In investing you lay out cash now, to get cash back later on. What determines the value of that investment is how much cash you put in, how soon will you get the cash back, and how sure are you to get the cash back. [40] The Partnership returns cash sooner than the management company. Cash now, is worth more than cash in the future, so Investors are willing to pay more for KMP shares that pay cash now, than KMR shares which retains the cash for the companies growth.

(2) Liquidity: KMR shares have had average trading volumes lower than the MLP units. The spread between (KMP) and KMR may be narrowing because KMR’s trading volumes have been increasing.

(3) No Natural Arbitrage: MLP units are difficult to sell short. Thus, no natural arbitrage opportunity exists, which would cause the units to trade more closely.

(4) No Conversion Provision: The ability to convert an i-unit to a common unit was removed by the partnerships soon after the public offerings. Hence, the i-units are not entirely pari passu with the MLP common units.

(5) KMR could be worth less than KMP on liquidation.

(6) Brokers have less reason to promote a stock like KMR that can be bought once and not offer additional income to advisors in the form of commissions from dividend reinvestments.

With KMP advisors and planners have funds coming in every quarter that they can redirect and generate additional commissions. Clients invested in KMR have taken the funds out of advisors hands as a source of future brokerage commissions.

Advantages of the Discount

 KMR is the more tax efficient entity, the discount acts as an incentive for shareholders to reinvest in the company. The ability to buy at a discount is a key benefit of buying KMR instead of KMP for capital accumulation, and higher yield on cost (YOC).

 The price may eventually return to the price of the partnership KMP. This price increase, combined with share distributions, will provide a return higher than holding KMP, over the same period of time. [41]

 KMR pays distributions in shares based on the average closing price for the 10 trading days prior to the ex-dividend date. [42] Cash dividends are paid by KMP as much as two weeks later. A clear advantage to KMR owners who receive shares sooner and cheaper in a rising market.

“Kinder has made a low-return, humdrum business into a river of money.” [43]


  1. [1] Pipelines - Here, There, Everywhere?
  2. [2] Shareholder letter 2012
  3. [3] KM Vision
  4. [4] Marketwatch
  5. [5] Shareholder letter 2012
  6. [6] Annual report 2012
  7. [7] Historical Returns
  8. [8] Todd Johnson - Seeking alpha
  9. [9] Marketwatch
  10. [10] Shareholder letter 2012
  11. [11] KM Strategy
  12. [12] Annual report 2011
  13. [13] Annual report financials 2011
  14. [14] Growth Rates
  15. [15] Seeking Alpha
  16. [16] Investing in MLPs
  17. [17] Shareholder letter 2012
  18. [18] Years of Growth
  19. [19] KMR shareholders retain cash
  20. [20] 2013 Financial Expectations
  21. [21] Wall Street Journal 2004
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  23. [23] Shareholder letter 2012
  24. [24] Four Ways to Invest
  25. [25] 2013 Budget Guidance
  26. [26] Fool natgas pipelines
  27. [27] Fool Products Pipelines
  28. [28] Fool Terminals
  29. [29]
  30. [30]
  31. [31] Unparalyzed asset footprint
  32. [32] Backlog projects
  33. [33] Zacks Equity Research
  34. [34] What to do with CO2?
  35. [35] Diversified Cash Flow
  36. [36] Capital Invested
  37. [37] Distributions
  38. [38] KMR 101 2013
  39. [39] Morningstar - Seeking Alpha
  40. [40] Warren Buffett
  41. [41] KMR 101
  42. [42] Prospectus dated March 1, 2012
  43. [43] N.Y.Times
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