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Strategies & Market Trends : Value Investing

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To: Graham Osborn who wrote (55551)	6/27/2015 6:14:12 PM
From: E_K_S	of 78883

Re: MLP's I continue to sell several of my MLP's because I think I can get equivalent growing dividend streams from qualified dividend payers and/or high yield corporate bonds in the same sector. I think one of the big issues yet to hit the newer MLP's is if management has estimated the correct current & future maintenance fees especially as the the asset utilization grows to fill capacity. There is not much room for error when you have long term contracts w/ fixed fee pricing and find that older over utilized facilities and gathering equipment must now be replaced in the out years. This will result in distribution cuts and/or the fixed fee terms can be increased based on actual amounts expensed over the contract term. Investors typically go into these deals w/ expectations of growing distributions (even juiced w/ IDRs). I own one MLP (CMLP) that was merged w/ it's sister MLP (CEQP) just to get rid of the IDRs. The GP was the largest unit holder and was able to do this as they controlled the majority of the unit(s). Their explanation was this provided the operation w/ a more efficient use of capital, increases current & future distribution coverage and provided a larger amount to invest into new Capx projects. Therefore, the value proposition can change significantly especially if the 'packaged' MLP contains understated maintenance fee schedules, IDRs that can be taken away from the unit holder at the GP's own discretion and/or higher asset utilization results in LOWER net FCF because equipment breaks down.. Buyer beware! FWIW, I still prefer to own the GP and did start a small position in OKE for that reason. EKS

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