While MLPs have become almost synonymous with the energy industry in recent years, the tax shelter also harbors a number of real estate and financial partnerships. Continuing last week’s survey of the more exotic MLPs, we’ll take a look at a timber company, an infrastructure play and several private equity firms. (Note that this is merely a brief overview of these partnerships and should not be considered as an endorsement).

Pope Resources (Nasdaq: POPE) is a land and timber owner in the Pacific Northwest. Assets include 113,000 acres of productive fee timberland, and a 20 percent stake in an additional 61,000 timberland acres. The partnership also owns 2,900 acres of development property, most near Seattle.

The partnership consists of three segments. Eighty-one percent of 2012 revenue was derived from Fee Timber. In 2012 this category included 191,000 acres of timberland in western Washington state, northwest Oregon and northern California, and 80,000 acres owned by timber funds.

The Timberland Management and Consulting segment is the group’s primary growth vehicle. Assets include three private equity timber funds with $231 million in assets under management and $134 million of committed capital.

The third segment is Real Estate, accounting for 15 percent of 2012 revenue. This consists of 2,900 acres of commercial and residential development in West Puget Sound.

Pope provides a way to invest in timber, but units are thinly traded. Further, at present they yield only 3.3 percent, which won’t be especially attractive should interest rates continue to climb.

Until recently you could also get some exposure to timber through Brookfield Infrastructure Partners (NYSE, TSX: BIP). But during the second quarter, BIP sold its low-yielding timber assets to free up capital for its utilities, transport and energy businesses. BIP’s business model is to operate high-yielding assets in these core sectors around the globe.

BIP’s Utility Platform generates 43 percent of the partnership’s cash flow through ownership of nearly 10,000 kilometers of transmission lines and 2.5 million gas and electricity connections across North and South America, Europe, and Australia.

The Transport Platform is responsible for 37 percent of cash flow, and consists of 28 ports, 3,200 km of toll roads and 5,100 km of rail operations in Europe, South America and Australia. The Energy Platform contributes the remaining 20 percent of cash flow and is comprised of natural gas pipelines and storage systems in the US and Australia.

Some 90 percent of BIP’s cash flow comes from regulated businesses or long-term contracts, and the partnership is geographically diversified with 17 percent of cash flow derived from North America, 19 percent from Europe, 28 percent from South America and 36 percent from Australasia.

BIP aims to pay out 60 to 70 percent of its funds from operations (FFO). Based on the most recent cash distributions of $0.43 per unit, the annual yield is 4.6 percent.

Shifting gears to an entirely different type of MLP, the Carlyle Group (Nasdaq: CG) is a leading private equity investor and asset manager with more than $180 billion under management. Carlyle serves more than 1,550 investors from 74 countries, and its 118 funds span four segments — Corporate Private Equity, Real Assets, Global Market Strategies and Global Solutions — and seven geographic regions.

Carlyle’s distribution policy has been to return 75 percent to 85 percent of after tax distributable earnings to unitholders. Those earnings are partially derived as fees, and are partially from carry funds that have a particular life cycle. For these funds, Carlyle goes through a cycle of fundraising, investing, appreciation, and then selling. Two examples of companies that have gone through the complete cycle with Carlyle are Hertz Global Holdings (NYSE: HTZ) and Dunkin’ Brands Group (Nasdaq: DNKN).

Carlyle went public in May 2012, and units are up 14 percent since. Over the past year, Carlyle has made quarterly distributions of $0.16, $0.16, $0.85, and $0.16 per unit, for an annualized yield of 5.3 percent.

AllianceBernstein Holding (NYSE: AB) is a financial services firm that provides research and investment management in 23 countries. The partnership also provides services to its sponsored mutual funds. AB caters to private clients and institutional investors alike, and presently has $436 billion under management. Over the past year the partnership has distributed $1.55 per unit to unitholders, for an effective yield of 7.4 percent.

Kohlberg Kravis Roberts (NYSE: KKR) is a $5.6 billion partnership with three business segments: Private Markets, Public Markets, and Capital Markets & Principal Activities. KKR has $83 billion of under management in its Private Market (65 percent of assets) and Public Market (35 percent) segments, and $4.6 billion of investments in the Capital Markets & Principal Activities segment.

Initially formed in 1976, KKR has completed more than 200 private equity investments with a total transaction value of more than $470 billion. The firm has grown by expanding globally and into new businesses, such as fixed income, hedge funds, capital markets, infrastructure, natural resources and real estate. KKR has completed a number of high-profile transactions over the years, including the landmark 1989 leveraged buyout of RJR Nabisco.

KKR units have rallied in 2013, gaining 32 percent year-to-date. In the past 12 months, the partnership has distributed $1.63, a yield of 8.1 percent at the current unit price.With a market cap of $13.7 billion, the Blackstone Group (NYSE: BX) is the largest of the financial services limited partnerships. Blackstone is the world’s largest independent alternative asset manager, with business segments consisting of Private Equity, Real Estate, Hedge Funds, Credit, and Mutual Funds, and a total of $230 billion of assets under management. Blackstone’s Financial Advisory segment is comprised of financial and advisory services, restructuring and reorganization advisory services and Park Hill Group, which provides fund placement services for alternative investment funds.

The partnership’s global investments span a diverse group of industries, including energy and natural resources, healthcare, financial services and hospitality. The partnership has made major investments in such household names as Hilton Worldwide, Caesars Entertainment (Nasdaq: CZR), The Weather Channel and Deutsche Telekom (OTC: DTEGY).

Net income was up 30 percent in 2012 to a record $2 billion, with strong performance in Real Estate, Private Equity, Credit and Hedge Fund Solutions. Like KKR, BX has rallied over the past year, with units gaining 59 percent in 12 months. Based on the past year’s distribution of $1.05 per unit, the current yield is 4.3 percent.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)


Portfolio Update
Kinder Morgan Debunks Hedgeye Claims

We’ve written recently about the intemperate allegations alleging that the largest pipeline operator in North America, the Kinder Morgan (NYSE: KMI) family of partnerships, is a “house of cards” built on misleading accounting.

The last two weeks saw the wide dissemination of the heavily hyped report on which those allegations were based and, finally, on Wednesday, a conference call offering a point-by-point rebuttal by top Kinder management.

Hedgeye’s report, as predicted, claimed that Kinder Morgan overstates distributable cash flow by skimping on maintenance and classifying too much spending as growth capital. Its purported proof consisted largely of comparisons of the financial reports filed by a couple of the companies Kinder Morgan has acquired in the past with the accounting treatments for the same assets in Kinder Morgan’s results after the acquisitions.

During its conference call, Kinder Morgan Chairman and CEO Richard Kinder conducted a head-on, point-by-point demolition of the claims made by Hedgeye energy analyst Kevin Kaiser. He noted, for example, that Kinder Morgan expenses much routine maintenance as an ongoing expense, so that sustaining capital is a poor proxy for total maintenance spending. Kinder also cited a recent Goldman Sachs survey that pegged Kinder Morgan’s sustaining capital spending above the MLP average as a percentage of EBITDA.

Rich Morgan also said Kaiser got some of the numbers used to make his case “just flat-out wrong,” in one case using a $400,000 figure where Kinder’s official filing quoted $38 million. He also pointed out, as we’ve done, that Hedgeye’s accounting quibbles can’t and don’t account for Kinder Morgan’s transparent reporting of total debt, GAAP earnings, cash flow and (the steadily excellent) return on invested capital.

KMI shares rallied 6 percent in the two trading sessions following the call, but the real mystery is why they should still be down 4 percent since Hedgeye started spreading fear. Over the same period, the Alerian MLP Index is down not quite 1 percent.

MLP investors hate controversy even more than most, and some may worry that Hedgeye’s call was but an opening act in an organized campaign against the partnership. In any case, KMI continues to be penalized unfairly.

Because Kaiser is right about one thing: as general partner with a rich stream of incentive distribution rights, KMI benefits disproportionately from increases in its partnerships’ distributions as well as from their follow-on equity offerings.

Continue buying KMI below $42.  

— Igor Greenwald