3.3 Other Real Assets Flashcards
Correlation between operating firms’ returns and price changes of their goods & services are driven by 3 factors:
1) price elasticity of demand for the good
2) price elasticity of the good
3) extend to which the operating firm has hedged or is exposed to changes in its profits
Why are operating companies’ stock investment is not a pure play?
Because stocks of operating companies tend to be more correlated with the overall equity markets
Shares of MLP are referred to as? And limited partners as?
Units
Limited partners = unit holders
3 major oil & gas sectors?
1) upstream - exploring and producing oil/gas
2) midstream - storing & transporting (little/no commodity price risk)
3) downstream - refining, distributing & marketing oil/gas
What are examples of the possible direct ownership risks of MLPs?
Development, extraction, etc
When MLPs were first established and what is their market cap today?
1981, 500 billion
How are: Corporations, Investment companies and Limited Partnerships taxed at:
1) corporate level
2) individual level
Corporation: 1) yes 2) yes
Invest companies: 1) no 2) yes
Limited partnership 1) no 2)no
What is cost basis?
The original price for which the asset was purchased for tax purposes.
Capital gains is the difference between cost basis (initial purchase) and sale price (later sale)
Return of capital is?
The return of PRINCIPAL invested WITHOUT the interest/return/income on that principal.
What is the limit on distributions for Mutual funds VS MLPs?
Mutual funds = income
MLPs = cash flow
3 potential drawbacks of MLPs?
1) complicated tax fillings (K-1 form)
2) Multiple state tax returns (MLPs have to pay taxes in every state which it operates in)
3) Unrelated business income tax (UBIT) - tax on income of a tax exempt entity that is not related to the tax exempt purposes of the entity
7 characteristics of INVESTABLE INFRASTRUCTURE
1) public use
2) monopolistic power
3) government controlled
4) essential
5) income producing
6) conducive to privatization of managerial control
7) capital intensive with long term horizons
Critical property of investable infrastructure is?
The nature of revenues. Investable infrastructure generates cashflows in monopolistic environment and depends on purchases or long term leases of facilities that generate stable cash flows
2 types of investable infrastructure projects, their definitions and reasons for using
1) greenfield project - not constructed yet, used to enable construction w/o using gov funds
2) brownfield - existing project already converted from a gov asset to a private asset, used to raise capital for a gov entity
2 infrastructure investment categories
1) economic - based on revenues (toll roads)
2) social - assets provide social service, do not generate revenue (schools, etc)
What is a concessionaire?
The holder of a concession (a right) to operate/build/manage, etc something given by the government
What does regulated pricing mean?
Changes to pricing of essential goods & services should be approved by public entities.
Regulatory risk
Risk of negative impact of government actions
What phases are included in the greenfield investment?
1) building & development
2) project construction
3) project ramp up period
3 types of infrastructure investment vehicles
1) listed securities
2) unlisted funds (open ended / close ended)
3) unlisted direct investment funds
Evergreen funds are? Key characteristics
Unlisted open ended funds.
Provide regular opportunities to invest more or withdraw funds.
To provide liquidity to investors, the fund needs to be able to quickly access capital otherwise it will have to install GATES.
Key characteristics of listed infrastructure stock
Have relatively high yields because of limited revenue growth potential and inelastic demand
Lower volatility because of monopolistic nature
Globally account for $3 trillion in assets. In 2014, S&P global infrastructure index comprised more than $1 trillion (40% utilities, 40% industrials, 20% energy)