3 Partnership IPOs: Kinder Morgan, Aveon and Summit Hotel Properties

Includes: AVO, INN, KMI, KMP
by: IPOdesktop

Partnership IPOs on tap include two general partnerships, Kinder Morgan (NYSE:KMI) and Aveon Group (AVO) and one limited partnership, Summit Hotel Properties (NYSE:INN). In total 13 IPOs are scheduled to raise $3.4 billion for the week of February 7. See IPO Calendar

The most attractive is Kinder Morgan (KMI), which plans a $2.2 billion IPO with a market capitalization of $19.4 billion. The price range mid-point of $27.50 and is scheduled for Friday, February 11, 2011

KMI owns 100% of the general partner interests of Kinder Morgan Partners (NYSE:KMP) ($22.5 billion market capitalization), including all the incentive distribution rights. KMI is similar to Targa Resources Investments (NYSE:TRGP), another private equity-backed owner of a similar but much smaller general partnership. TRGP IPOed December 7, 2010 at $22 and is up 35%.

KMI is priced at a discount to TRGP. The expected dividend rate is 4.2% for KMI at the price range mid-point of $27.50, compared to an expected dividend rate of 3.5% for TRGP at a $30. Pipeline & storage limited partnerships themselves generally pay 5.4% to 6.8% and sell for book values from 1.9 to 3.6.

KMI Valuation Metrics

BUSINESS -- KMI owns the general partner interest including incentive distribution rights in KMP and 11% of the limited partner interests of KM. Ninety-five percent of the distributions KMI received from subsidiaries for both the nine months ended September 30, 2010 and the year ended December 31, 2009 were attributable to KMP. KMI’s assets generate cash for the payment of dividends and for other purposes

KMP -- Kinder Morgan Energy Partners, L.P. KMP is a pipeline transportation and energy storage company in North America. KMP owns an interest in 28,000 miles of pipelines and 180 terminals. KMP has a market capitalization of $22.5 billion

INCENTIVE DISTRIBUTION -- Incentive Distribution Rights allow the general partners to take a higher proportion of incremental amounts over a certain threshold levels. KMI’s general partner interest in KMP entitles KMI to receive incentive distributions that give KMI an increasing share of KMP's cash flow as the distributions to its limited partners increase.

From 1996, the year before Richard D. Kinder and William V. Morgan acquired the general partner, through 2011 (as estimated by the Partnership), the distributions received from the Partnership will have increased by a compound annual growth rate of 52%.

DIVIDEND POLICY -- expects to pay an initial quarterly dividend of $0.29 per share, $1.16 annual rate 4.2% annual rate.

USE OF PROCEEDS -- 100% to private equity shareholders including Goldman & Carlye.

Aveon Group L.P. (The) (AVO) plans a $236mm IPO with a market capitalization of $236 million at the price range mid-point of $15, scheduled for Tuesday, February 8, 2011.

CONCLUSION -- AVO is a roll up by acquisition of small, second tier, money-losing hedge fund managers. Sales were down 40% at an annualized rate for the nine months ended September 2010 compared to the year ended December 2009. Profts sagged from $2.9 million to a loss of $1.7 million. Where's the beef?

AVO Valuation Metrics

Summit Hotel Properties (INN) plans a $265mm IPO with a market capitalization of $363 million at the price range mid-point of $11.50, scheduled for the week of February 7, 2011.

An "up REIT" putting existing properties into an IPO to use proceeds to pay debt. The problem is that the projected dividend rate is to be generated from ‘financing activities’ not operations -- not good for public investors

INN Valuation Metrics

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.