Restricted Voting Shareholders Receive $1.2 Billion Return of Capital Distributions
CALGARY, Jan. 16, 2019 /CNW/ – The Kinder Morgan Canada Limited (TSX: KML) board of directors has declared a dividend for the fourth quarter of 2018 of $0.1625 per split-adjusted restricted voting share ($0.65 annualized), payable on February 15, 2019, to restricted voting shareholders of record as of January 31, 2019. KML’s restricted voting share dividends are eligible dividends for Canadian income tax purposes. KML’s board also determined to suspend KML’s dividend reinvestment plan (DRIP), effective with this dividend in light of KML’s reduced need for capital.
“KML’s strategic infrastructure operations across western Canada had a strong fourth quarter, underpinned by multi-year take-or-pay contracts with high quality customers and stable cash flows,” said KML Board Chairman and CEO Steve Kean. “As we have said previously, the original purpose of KML was to hold a strong set of midstream assets and to provide a funding mechanism for the Trans Mountain expansion,” said Dax Sanders, KML Chief Financial Officer. “In light of last year’s Trans Mountain sale, KML continues to evaluate all options in order to maximize value to KML shareholders. Those options include, among others, continuing to operate as a standalone enterprise, a disposition by sale, or a strategic combination with another company.”
KML reported fourth quarter income from continuing operations of $40.3 million, an increase of $22.3 million from the fourth quarter of 2017. Distributable cash flow (DCF) from continuing operations was $62.9 million, up 84 percent compared to the comparable prior year period. DCF from continuing operations for the quarter benefited from interest income on the deposited proceeds from the sale of Trans Mountain as well as greater contributions from both the Pipelines and Terminals segments versus the same period in 2017, partially offset by a full quarter of Series 3 preferred stock dividends in 2018.
In the fourth quarter, KML generated earnings per split-adjusted restricted voting share from continuing operations of $0.30. KML produced DCF from continuing operations of $0.53 per split-adjusted restricted voting share relative to our declared $0.1625 per split-adjusted restricted voting share dividend, resulting in $12.8 million of excess DCF coverage above the company’s dividend.
Overview of Business Segments
“Earnings in our Terminals segment were up 13 percent compared to the fourth quarter of 2017. At our Edmonton-area terminals, volume was up 5.6 million barrels, or 19 percent, year-over-year, driven by the new Base Line Terminal joint venture coming online and strong demand for rail loadings at Edmonton South Rail Terminal and Alberta Crude Terminal,” noted John Schlosser, KML President. “Contributions from Base Line Terminal and higher rates achieved on re-contracted tank leases at our North 40 and Edmonton South terminals were partially offset by a $6.1 million true-up in terminal fees in connection with a favorable arbitration ruling recognized in the prior year period.
“Contributions from our Vancouver Wharves facility were up nearly 10 percent compared to the fourth quarter of 2017 driven by strong distillate volumes and fees associated with a project to re-activate an idled mineral concentrate storage shed,” continued Schlosser.
“Pipeline segment earnings were up 39 percent compared to the fourth quarter of 2017, led by Cochin. Cochin’s increased earnings were primarily due to timing on the recognition of deficiency revenue.”
Return of Capital Distributions and Share Consolidation
Approximately $3,977.4 million of the proceeds from the August 31, 2018 sale of the Trans Mountain pipeline system were disbursed to KML’s voting shareholders on January 3, 2019, including approximately $1,195.1 million distributed to KML’s restricted voting shareholders as a return of capital ($11.40 per share). On January 4, 2019, KML effected a “reverse stock split” of its restricted voting shares and special voting shares on a one-for-three basis (three shares consolidating to one share). Also during the fourth quarter, KML received shareholder approval and recorded a reduction of its stated capital of KML’s restricted voting shares by $1.45 billion. The above transactions had no impact on KML’s outstanding preferred shares or dividends payable thereon.
2019 Outlook
For 2019, as previously disclosed, KML’s budget contemplates declaring a dividend of $0.65 per restricted voting share, generating Adjusted EBITDA of $213 million and DCF from continuing operations of approximately $109 million, representing DCF of $0.90 per split-adjusted restricted voting share. KML’s budget also contemplates investing approximately $32 million in expansion projects, and ending the year with a Net Debt-to-Adjusted EBITDA ratio of approximately 1.3 times (treating 50 percent of the outstanding preferred equity balance as debt).
We do not provide forecasted income from continuing operations (the GAAP financial measure most directly comparable to the non-GAAP financial measures DCF from continuing operations and Adjusted EBITDA) due to the impracticality of quantifying certain amounts required by GAAP, such as realized and unrealized foreign currency gains and losses and potential changes in estimates for certain contingent liabilities.
Other News
Corporate
KML’s board of directors declared a dividend of $0.328125 per Series 1 preferred share ($1.3125 annualized) and $0.3250 per Series 3 preferred share ($1.30 annualized), each payable on February 15, 2019 to Series 1 and Series 3 preferred shareholders of record as of the close of business on January 31, 2019. KML’s preferred share dividends are eligible dividends for Canadian income tax purposes.
As noted above, KML’s board of directors has also suspended, until further notice, KML’s DRIP, effective January 16, 2019. Accordingly, dividends in respect of the fourth quarter of 2018, payable on February 15, 2019 to holders of restricted voting shares of record as of the close of business on January 31, 2019, will not be reinvested through the DRIP. Shareholders who were enrolled in the program will automatically receive dividend payments in the form of cash. If KML elects to reinstate the DRIP in the future, shareholders who were enrolled in the DRIP at suspension and remained enrolled at reinstatement will automatically resume participation in the DRIP. Kinder Morgan, Inc.’s participation in the distribution reinvestment in Class B units of Kinder Morgan Canada Limited Partnership has been suspended since July 18, 2018.
Terminals
With the final tanks placed in service early in the fourth quarter of 2018, construction of all major facilities at the Base Line Terminal in Edmonton, Alberta, Canada, is complete. The 12-tank, 4.8 million barrel facility is fully contracted with long-term, firm take-or-pay agreements with creditworthy customers. The 50-50 joint venture crude oil merchant storage terminal developed by KML and Keyera Corp. was completed on time and under budget, with Kinder Morgan investing approximately $357 million.
Permitting efforts continue on the distillate storage expansion project at KML’s Vancouver Wharves terminal in North Vancouver, British Columbia. The $43 million capital project includes the construction of two new distillate tanks with combined storage capacity of 200,000 barrels and enhancements to the railcar unloading capabilities. The project is supported by a 20-year initial term, take-or-pay contract with an affiliate of a large, international integrated energy company and is expected to be placed in service in the first quarter of 2021.
About Kinder Morgan Canada Limited (TSX: KML). KML manages and is the holder of an approximately 30 percent minority interest in a portfolio of strategic energy infrastructure assets across Western Canada. Kinder Morgan, Inc. (NYSE: KMI) holds an approximately 70 percent majority voting interest in KML and a corresponding 70 percent economic interest in KML’s business and assets. KML focuses on stable, fee-based energy transportation and storage assets that are central to the energy infrastructure of Western Canada. We strive to promote shareholder value by increasing utilization of our existing assets while controlling costs and operating in a safe and environmentally responsible way. For more information visit kindermorgancanadalimited.com
Kinder Morgan Canada Limited and Subsidiaries
Preliminary Consolidated Statements of Income
(Unaudited)
(In millions of Canadian dollars, except per share amounts)
Three Months Ended |
Twelve Months Ended |
|||||||||||
2018 |
2017 |
2018 |
2017 |
|||||||||
Revenues |
$ |
105.2 |
$ |
95.0 |
$ |
383.8 |
$ |
358.9 |
||||
Costs, expenses and other |
||||||||||||
Operations and maintenance |
37.7 |
37.7 |
154.5 |
162.5 |
||||||||
Depreciation and amortization |
21.5 |
18.0 |
82.6 |
71.7 |
||||||||
General and administrative |
12.4 |
8.7 |
39.0 |
30.9 |
||||||||
Taxes, other than income taxes |
2.2 |
1.4 |
6.2 |
6.7 |
||||||||
Other (income) expense, net |
— |
0.4 |
(9.3) |
3.4 |
||||||||
73.8 |
66.2 |
273.0 |
275.2 |
|||||||||
Operating income |
31.4 |
28.8 |
110.8 |
83.7 |
||||||||
Other income (expense) |
||||||||||||
Interest, net |
21.1 |
(3.6) |
27.2 |
(8.2) |
||||||||
Foreign exchange loss |
0.5 |
0.2 |
0.1 |
(5.1) |
||||||||
Other, net |
0.1 |
0.2 |
(0.3) |
0.9 |
||||||||
Income from continuing operations before income taxes |
53.1 |
25.6 |
137.8 |
71.3 |
||||||||
Income tax expense |
(12.8) |
(7.6) |
(37.8) |
(25.3) |
||||||||
Income from continuing operations |
40.3 |
18.0 |
100.0 |
46.0 |
||||||||
(Loss) Income from Discontinued Operations, net of tax (1) |
(27.8) |
28.4 |
1,320.0 |
114.7 |
||||||||
Net income |
12.5 |
46.4 |
1,420.0 |
160.7 |
||||||||
Preferred share dividends |
(7.2) |
(4.6) |
(28.8) |
(6.6) |
||||||||
Net income attributable to KMI interest |
(2.6) |
(29.8) |
(974.4) |
(126.2) |
||||||||
Net income available to restricted voting stockholders |
$ |
2.7 |
$ |
12.0 |
$ |
416.8 |
$ |
27.9 |
||||
Restricted Voting Shares |
||||||||||||
Basic and diluted earnings per restricted voting share from Continuing Operations |
$ |
0.30 |
0.10 |
$ |
0.62 |
0.27 |
||||||
Basic and diluted earnings per restricted voting share from Discontinued Operations (1) |
$ |
(0.22) |
0.24 |
$ |
11.38 |
0.73 |
||||||
Basic and diluted weighted average restricted voting shares outstanding (2) |
34.9 |
34.4 |
34.7 |
27.6 |
||||||||
Segment EBDA |
% change |
% change |
||||||||||
Terminals |
$ |
52.4 |
$ |
46.2 |
13% |
$ |
193.2 |
$ |
162.8 |
19% |
||
Pipelines |
13.5 |
9.7 |
39% |
39.0 |
19.1 |
104% |
||||||
Total Segment EBDA from Continuing Operations |
$ |
65.9 |
$ |
55.9 |
18% |
$ |
232.2 |
$ |
181.9 |
28% |
Notes |
|
(1) |
Represents income from TMPL and TMEP and related assets, including a gain of $1,280.2 million, net of tax, for 2018. |
(2) |
Reflects our Jan. 2019 1-for-3 reverse stock split for all periods presented in accordance with U.S. GAAP. |
Kinder Morgan Canada Limited and Subsidiaries
Preliminary Earnings Contribution by Business Segment
(Unaudited)
(In millions of Canadian dollars, except per share amounts)
Three Months Ended |
Twelve Months |
||||||||||||||
2018 |
2017 |
% change |
2018 |
2017 |
% change |
||||||||||
Segment EBDA before certain items (1) |
|||||||||||||||
Terminals |
$ |
52.3 |
$ |
46.2 |
13% |
$ |
183.6 |
$ |
162.8 |
13% |
|||||
Pipelines |
13.5 |
9.7 |
39% |
39.0 |
19.1 |
104% |
|||||||||
Subtotal |
65.8 |
55.9 |
18% |
222.6 |
181.9 |
22% |
|||||||||
DD&A |
(21.5) |
(18.0) |
(82.6) |
(71.7) |
|||||||||||
General and administrative and corporate charges (1) |
(8.3) |
(8.5) |
(33.5) |
(28.1) |
|||||||||||
Interest income (expense), net (1) (2) |
21.1 |
(3.6) |
28.2 |
(8.2) |
|||||||||||
Subtotal |
57.1 |
25.8 |
134.7 |
73.9 |
|||||||||||
Book taxes (1) |
(14.0) |
(7.6) |
(36.9) |
(26.0) |
|||||||||||
Income from continuing operations before Certain Items (“Adjusted Earnings from continuing operations”) |
43.1 |
18.2 |
97.8 |
47.9 |
|||||||||||
Certain items |
|||||||||||||||
Foreign exchange loss on the KMI Loans |
— |
— |
— |
0.2 |
|||||||||||
Gain on divestitures, net |
(4.0) |
— |
3.1 |
— |
|||||||||||
Other |
— |
(0.2) |
— |
(2.8) |
|||||||||||
Subtotal certain items before tax |
(4.0) |
(0.2) |
3.1 |
(2.6) |
|||||||||||
Book tax certain items |
1.2 |
— |
(0.9) |
0.7 |
|||||||||||
Total certain items |
(2.8) |
(0.2) |
2.2 |
(1.9) |
|||||||||||
Income from continuing operations |
40.3 |
18.0 |
100.0 |
46.0 |
|||||||||||
Income from discontinued operations (3) |
(27.8) |
28.4 |
1,320.0 |
114.7 |
|||||||||||
Net Income |
12.5 |
46.4 |
1,420.0 |
160.7 |
|||||||||||
Preferred share dividends |
(7.2) |
(4.6) |
(28.8) |
(6.6) |
|||||||||||
Net income attributable to KMI interest |
(2.6) |
(29.8) |
(974.4) |
(126.2) |
|||||||||||
Net income available to restricted voting stockholders |
$ |
2.7 |
$ |
12.0 |
$ |
416.8 |
$ |
27.9 |
|||||||
Continuing Operations: |
|||||||||||||||
Income from continuing operations |
$ |
40.3 |
$ |
18.0 |
$ |
100.0 |
$ |
46.0 |
|||||||
Total certain items |
2.8 |
0.2 |
(2.2) |
1.9 |
|||||||||||
Adjusted earnings from continuing operations |
43.1 |
18.2 |
97.8 |
47.9 |
|||||||||||
DD&A |
21.5 |
18.0 |
82.6 |
71.7 |
|||||||||||
Total book taxes |
14.0 |
7.6 |
36.9 |
26.0 |
|||||||||||
Cash taxes |
(0.1) |
(0.2) |
(8.5) |
(0.2) |
|||||||||||
Preferred share dividends |
(7.2) |
(4.6) |
(28.8) |
(6.6) |
|||||||||||
Sustaining capital expenditures |
(8.4) |
(4.8) |
(18.5) |
(17.9) |
|||||||||||
DCF from continuing operations |
62.9 |
$ |
34.2 |
161.5 |
$ |
120.9 |
|||||||||
DCF from continuing operations to KMI interest |
(44.4) |
(24.0) |
(113.5) |
(90.2) |
|||||||||||
DCF from continuing operations for restricted voting stockholders (4) |
$ |
18.5 |
$ |
10.2 |
$ |
48.0 |
$ |
30.7 |
|||||||
Weighted average split-adjusted restricted voting shares outstanding for dividends (5) |
35.0 |
34.7 |
34.9 |
34.6 |
|||||||||||
DCF from continuing operations per split-adjusted restricted voting share |
$ |
0.53 |
$ |
0.29 |
$ |
1.38 |
$ |
0.89 |
|||||||
Adjusted EBITDA from continuing operations (6) |
$ |
57.5 |
$ |
47.4 |
$ |
189.1 |
$ |
153.8 |
Notes (In millions of Canadian dollars) |
|
(1) |
Excludes certain items: |
(2) |
For the periods prior to our May 30, 2017 initial public offering, amounts were associated with KMI loans that were repaid 2Q 2017. |
(3) |
Includes the gain on sale of Trans Mountain, net of tax, for 4Q 2018 and YTD 2018 of $(27.8) and $1,280.2, respectively. |
(4) |
DCF is calculated as follows: |
Three Months Ended December 31, |
Twelve Months Ended December 31, |
||||||||||
2018 |
2017 |
2018 |
2017 |
||||||||
Discontinued Operations: |
|||||||||||
(Loss) Income from discontinued operations, net of tax |
$ |
(27.8) |
$ |
28.4 |
$ |
1,320.0 |
$ |
114.7 |
|||
Certain items before book tax (3) |
36.1 |
— |
(1,131.2) |
2.6 |
|||||||
Book tax certain items (3) |
(8.3) |
— |
(101.2) |
(0.7) |
|||||||
DD&A |
— |
16.8 |
46.8 |
70.7 |
|||||||
Total book taxes before certain items |
0.5 |
14.2 |
35.5 |
39.6 |
|||||||
Sustaining capital expenditures |
— |
(10.9) |
(18.6) |
(25.1) |
|||||||
DCF from discontinued operations |
0.5 |
48.5 |
151.3 |
201.8 |
|||||||
DCF from continuing operations for restricted voting stockholders |
18.5 |
10.2 |
48.0 |
30.7 |
|||||||
DCF from continuing operations to KMI interest |
44.4 |
24.0 |
113.5 |
90.2 |
|||||||
DCF |
$ |
63.4 |
$ |
82.7 |
$ |
312.8 |
$ |
322.7 |
(5) |
Reflects our Jan. 2019 1-for-3 reverse stock split for all periods presented in accordance with U.S. GAAP. Also, includes stock awards of restricted voting shares that participate in dividends. The 2017 weighted average restricted voting shares outstanding for dividends calculation is based on the actual days in which the shares were outstanding for the period from May 30, 2017 to June 30, 2017. Therefore, the amounts differ from the GAAP weighted average restricted voting shares outstanding from the date of our formation. |
|
(6) |
Adjusted EBITDA is calculated as follows: |
Three Months Ended December 31, |
Twelve Months Ended December 31, |
||||||||||
2018 |
2017 |
2018 |
2017 |
||||||||
Discontinued Operations: |
|||||||||||
(Loss) Income from discontinued operations, net of tax |
$ |
(27.8) |
$ |
28.4 |
$ |
1,320.0 |
$ |
114.7 |
|||
Total certain items |
27.8 |
— |
(1,232.4) |
1.9 |
|||||||
DD&A |
— |
16.8 |
46.8 |
70.7 |
|||||||
Total book taxes before certain items |
0.5 |
14.2 |
35.5 |
39.6 |
|||||||
Interest, net before certain items |
(0.5) |
1.3 |
(6.5) |
7.6 |
|||||||
Adjusted EBITDA from discontinued operations |
— |
60.7 |
163.4 |
234.5 |
|||||||
Continuing Operations: |
|||||||||||
Income from continuing operations |
40.3 |
18.0 |
100.0 |
46.0 |
|||||||
Total certain items |
2.8 |
0.2 |
(2.2) |
1.9 |
|||||||
DD&A |
21.5 |
18.0 |
82.6 |
71.7 |
|||||||
Total book taxes before certain items |
14.0 |
7.6 |
36.9 |
26.0 |
|||||||
Interest, net before certain items |
(21.1) |
3.6 |
(28.2) |
8.2 |
|||||||
Adjusted EBITDA from continuing operations |
57.5 |
47.4 |
189.1 |
153.8 |
|||||||
Adjusted EBITDA |
$ |
57.5 |
$ |
108.1 |
$ |
352.5 |
$ |
388.3 |
Volume Highlights
(Historical pro forma for acquired assets)
Three Months Ended December 31, |
Twelve Months Ended December 31, |
||||
2018 |
2017 |
2018 |
2017 |
||
Terminals |
|||||
Liquids Leasable Capacity (MMBbl) (1) |
9.6 |
7.3 |
9.6 |
7.3 |
|
Liquids Utilization % |
100% |
100.0% |
100.0% |
100.0% |
|
Bulk Transload Tonnage (MMtons) |
1.2 |
1.3 |
4.1 |
4.5 |
|
Pipelines |
|||||
Canadian Cochin (MBbl/d – mainline throughput) |
75 |
86 |
83 |
86 |
(1) |
Includes KML’s share of Joint Venture capacity. |
Kinder Morgan Canada Limited and Subsidiaries
Preliminary Consolidated Balance Sheets
(Unaudited)
(In millions of Canadian dollars)
December 31, |
December 31, |
||||
2018 |
2017 |
||||
ASSETS |
|||||
Cash and cash equivalents |
$ |
4,338.1 |
$ |
110.7 |
|
Current assets held for sale (1) |
— |
192.7 |
|||
Other current assets |
39.6 |
37.2 |
|||
Property, plant and equipment, net |
981.3 |
988.4 |
|||
Long-term assets held for sale (1) |
— |
3,050.4 |
|||
Deferred charges and other assets |
10.6 |
73.3 |
|||
TOTAL ASSETS |
$ |
5,369.6 |
$ |
4,452.7 |
|
LIABILITIES AND EQUITY |
|||||
Liabilities |
|||||
Credit facility |
$ |
— |
$ |
— |
|
Current liabilities held for sale (1) |
— |
207.3 |
|||
Distribution payable |
1,195.1 |
— |
|||
Distribution payable-related parties |
2,782.3 |
— |
|||
Other current liabilities (2) |
427.5 |
91.0 |
|||
Long-term liabilities held for sale (1) |
— |
163.2 |
|||
Other long-term liabilities (2) |
70.4 |
353.6 |
|||
Total liabilities |
4,475.3 |
815.1 |
|||
Equity |
|||||
Other equity |
650.1 |
1,474.7 |
|||
Accumulated other comprehensive loss |
— |
(8.8) |
|||
Total KML equity |
650.1 |
1,465.9 |
|||
KMI interest |
244.2 |
2,171.7 |
|||
Total equity |
894.3 |
3,637.6 |
|||
TOTAL LIABILITIES AND EQUITY |
$ |
5,369.6 |
$ |
4,452.7 |
|
Net Debt (Cash) |
$ |
(4,338.1) |
$ |
(110.7) |
|
Net Debt (Cash) including 50% of KML preferred shares (3) |
$ |
(85.7) |
$ |
164.3 |
|
Adjusted EBITDA |
|||||
December 31, |
December 31, |
||||
Reconciliation of Net Income to Adjusted EBITDA |
2018 |
2017 |
|||
Income from continuing operations |
$ |
100.0 |
$ |
46.0 |
|
Total certain items |
(2.2) |
1.9 |
|||
DD&A |
82.6 |
71.7 |
|||
Total book taxes before certain items |
36.9 |
26.0 |
|||
Interest, net before certain items |
(28.2) |
8.2 |
|||
Adjusted EBITDA from discontinued operations |
163.4 |
234.5 |
|||
Adjusted EBITDA (4) |
$ |
352.5 |
$ |
388.3 |
|
Net Debt (Cash) including 50% of KML preferred shares to Adjusted EBITDA |
(0.2) |
0.4 |
Notes |
|
(1) |
Amounts related to Trans Mountain are presented as held for sale as of December 31, 2017 in accordance with GAAP. These assets and liabilities were not actually being held for sale at that point in time. |
(2) |
Includes impact to accrued taxes and deferred income taxes resulting from the sale of Trans Mountain pipeline system. |
(3) |
December 31, 2018 and 2017 amounts include: $275 million representing 50% of our preferred stock, which is included in Other equity. 2018 excludes Return of Capital dividends of $3,977.4 million. |
(4) |
Includes both continuing operations and discontinued operations, see Note (6) to Preliminary Earnings Contribution by Business Segment page. |