CALGARY, July 17, 2019 /CNW/ – The Kinder Morgan Canada Limited (TSX: KML) board of directors has declared a dividend for the second quarter of 2019 of $0.1625 per restricted voting share ($0.65 annualized), payable on August 15, 2019, to restricted voting shareholders of record as of July 31, 2019. KML’s restricted voting share dividends are eligible dividends for Canadian income tax purposes.
“I congratulate every KML employee for their focus and dedication to business during the strategic review that concluded in May, as previously announced,” said KML Board Chairman and CEO Steve Kean. “The KML Pipelines and Terminals segments performance for the quarter was very strong.”
“KML continues to be a valuable entity with assets that are underpinned by multi-year take-or-pay contracts with high quality customers and stable cash flows,” noted Dax Sanders, KML Chief Financial Officer.
KML reported second quarter income from continuing operations of $21.6 million, a decrease of $1.9 million from the second quarter of 2018. The quarter over quarter variance in income from continuing operations was negatively impacted by the recognition of a non-recurring gain on an asset sale during the second quarter of 2018. Distributable cash flow (DCF) from continuing operations was $28.3 million, down 22 percent compared to the comparable prior year period. DCF from continuing operations was negatively impacted by a $9 million increase in cash tax payments due to the change from a net operating loss to a taxable position as a result of the Trans Mountain sale. Income from continuing operations and DCF both benefited from greater contributions from ongoing operations in the Pipelines and Terminals segments versus the same period in 2018.
In the second quarter, KML generated earnings per restricted voting share from continuing operations of $0.12. KML produced DCF from continuing operations of $0.24 per restricted voting share relative to our declared $0.1625 per restricted voting share dividend, resulting in $2.8 million in excess coverage over the dividend.
For the first half of 2019, KML generated net income of $42.9 million, Adjusted EBITDA of $104.8 million, and DCF of $50.7 million.
Overview of Business Segments
“Due to the recognition of the gain on the sale of an Edmonton area pipeline lateral in the second quarter of 2018, earnings in our Terminals segment were down 5 percent in the second quarter of 2019, compared to that prior period. Excluding that gain recognition, contributions from the segment were actually up 15 percent compared to the second quarter of 2018,” noted John Schlosser, KML President. “Earnings contributions from the Edmonton-area terminals were up nearly 17 percent compared to the second quarter of 2018 driven primarily by storage capacity additions at our new Base Line Terminal joint venture. Volume at our Edmonton-area terminals was down 1.8 million barrels, or 8 percent, year-over-year, as mandated production curtailments continue to compress pricing differentials and pressure crude-by-rail economics. The take-or-pay nature of our contracts largely insulates segment earnings from short-term volume fluctuations.
“Contributions from our Vancouver Wharves facility were flat compared to the second quarter of 2018,” continued Schlosser. “Also this quarter, with all material permits secured, we began construction activities on the distillate storage expansion project at the Wharves facility. During this $43 million capital project, we will construct two new distillate tanks with combined storage capacity of 200,000 barrels and enhance 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 we expect to place it in service late second quarter of 2021.”
Pipeline segment earnings were up $1.1 million, or 11 percent, compared to the second quarter of 2018, primarily due to increased volumes on Cochin.
KML is on track to meet its 2019 budget, which contemplates declaring dividends of $0.65 (annualized) per restricted voting share, generating Adjusted EBITDA of $213 million and generating DCF from continuing operations of approximately $109 million, representing DCF per restricted voting share of $0.90. KML also plans to invest approximately $35 million in expansion projects (versus $32 million contemplated in the budget), and, consistent with the budget, to end the year with a Net Debt-to-Adjusted EBITDA ratio of approximately 1.3 times (treating 50 percent of KML’s preferred equity 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.
Normal Course Issuer Bid
The KML board has authorized a stock buyback program that will allow it to opportunistically repurchase up to two million of KML restricted voting shares. The Toronto Stock Exchange (TSX) has accepted KML’s notice of intention to make a normal course issuer bid (NCIB) through which KML may purchase up to 1,999,902 restricted voting shares during the 12-month period commencing July 22, 2019 and ending July 21, 2020. The number of shares authorized for purchase represents 10 percent of KML’s public float (based on 34,944,993 restricted voting shares and excluding 10 percent shareholders) as of July 9, 2019. Under the NCIB, purchases will be made on the open market through the facilities of the TSX and/or alternative Canadian trading systems at the market price at the time of acquisition, as well as by other means as may be permitted by TSX rules and applicable securities laws, including by private agreement. Purchases made by private agreement under an issuer bid exemption order issued by a securities regulatory authority will be at a discount to the prevailing market price as provided in such exemption order.
KML has also entered into an automatic share purchase plan (ASPP) in relation to purchases made in connection with the NCIB to allow it to purchase restricted voting shares under the NCIB when KML would ordinarily not be permitted to purchase shares due to regulatory restrictions and customary self-imposed blackout periods. Pursuant to the ASPP, KML will provide instructions during non-blackout periods to its designated broker, which instructions may not be varied or suspended during the applicable blackout period. Purchases by KML’s designated broker will be in accordance with stock exchange rules, applicable securities laws and the terms of the ASPP, and all purchases made under the ASPP will be included in computing the number of restricted voting shares purchased under the NCIB. The ASPP has been pre-cleared by the TSX.
The actual number of restricted voting shares that may be purchased under the NCIB and the timing of any such purchases will be determined by KML. The average daily trading volume through the facilities of the TSX during the most recently completed six-month period was 228,201 restricted voting shares. Consequently, daily purchases through the facilities of the TSX will be limited to 57,050 restricted voting shares, other than block purchase exceptions. All restricted voting shares acquired by KML under the NCIB will be cancelled.
KML believes that opportunistically purchasing its own shares represents an attractive opportunity that is in the best interests of the company and its shareholders.
Preferred Share Dividend
In addition to the above-described dividend declared on the restricted voting shares, KML’s board of directors declared a quarterly 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 August 15, 2019 to Series 1 and Series 3 preferred shareholders of record as of July 31, 2019. KML’s preferred share dividends are eligible dividends for Canadian income tax purposes.
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.
Please join KMI and KML at 4:30 p.m Eastern Time on Wednesday, July 17, 2019, at www.kindermorgan.com for a LIVE webcast conference call that will include a discussion of KML’s second quarter earnings. A printer-friendly copy of this earnings release and supplemental earnings information are available under the “Earnings Releases” tab in the “Annual and Quarterly Reports” section of our investor website, which can be accessed via the following link: