Kayne Anderson Energy Development Company (KED)

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Kayne Anderson Energy (KED)

Q4 2007 Earnings Call

February 12, 2008 10:00 am ET


Terry Hart - CFO

Kevin McCarthy - President and CEO


James Shanahan - Wachovia



Good day ladies and gentlemen, and welcome to the fourth quarter and year end 2007 Kayne Anderson Energy Development Company Earnings Call. My name is Francis and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions)

I would now like to turn the call over to, Mr. Terry Hart, Chief Financial Officer for the company. Please proceed.

Terry Hart

Good morning, everyone, and welcome to the Kayne Anderson Energy Development Company conference call to discuss our results for the quarter and year ended November 30th, 2007. Before we begin this morning, I would like to remind you that our call will include statements reflecting assumptions, expectations, projections, intentions, or beliefs of our future events. These and other statements not relating strictly to historical or current facts are intended to be forward-looking. Generally, words such as believe, expect, intend, estimate, anticipate, project, will, and similar expressions identify forward-looking statements, which generally are not historical in nature.

Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ from the company's historical experience, its present expectations, or projections. For a description of the factors that may cause such a variance, I would direct you to the forward-looking statement discussion in our annual report on Form 10-K and our quarterly reports on Form 10-Q. These reports are available free of charge through our website at www.kaynefunds.com and at SEC.gov.

You should not place undue reliance on forward-looking statements. The company undertakes no obligation to update or revise any forward-looking statements. There is no assurance that the company's investment objectives will be attained. With that, I will now turn our conference over to our President and Chief Executive Officer, Kevin McCarthy.

Kevin McCarthy

Thanks, Terry and good morning everybody. Thank you for joining us today for our fourth-quarter conference call for Kayne Anderson Energy Development Company, or KED. With me in Houston today are Terry Hart and John Riley. Also dialed into the call from LA are J.C. Frey, David LaBonte, and David Shladovsky.

First we would like to start a review of our operational performance during the year, and the quarter ended November 30th, then we will review current market conditions for investments, and our recent announcement that we have elected to no longer be treated as an RIC for tax purposes. Next Terry will discuss our financial performance, and finally, we will discuss our guidance based on our portfolio at end of November 30th, and then open the phone lines for our Q&A session.

During the fourth quarter we had a total return of just under 1%, based on the change in NAV plus dividends paid during the quarter. This performance was achieved in spite of the volatility in the capital markets during the quarter. From the beginning of August to the end of the fiscal year, both the fixed income and MLP markets experienced substantial downward pressure.

During fiscal 2007, we had a total return of 6.3% based on the change in NAV, plus the reinvestment of dividends. As we'll discuss in more detail we believe the fundamentals for both public and private main stream energy companies remains quite strong.

As we review our operational performance for the year, we are very proud of what we accomplished. Fiscal 2007 was a year of executing other plans we outlined in our IPO. First we invested the proceeds from our IPO within nine months in line with our projected ramp up period.

Second we established our revolving credit facility, and invested $85 million of proceeds in portfolio securities.

Third we achieved our dividend target yield which was 6.5% of the IPO prize, one quarter ahead of plan. Dividends paid during fiscal '07 were approximately $1.35 per share, which exceeds our target distribution for the first full fiscal year of $1.30 per share.

Finally, KED paid a dividend of $0.41 per share in January 2008, which was attributable to the fourth quarter. This dividend is $0.13 per share higher than the dividend rate paid in January of 2007. As a result of our most recent dividend increase, we are now yielding approximately 6.8%.

As a result of our investing throughout the year, at November 30th, we owned $93 million of equity securities of MLPs and MLP affiliates, which represented approximately 28% of our total investments. $138 million of equity securities of private MLPs which is 43% of our total, and $96 million of debt securities and preferred stock of private energy companies, which is 29% of the total. As many of you know, it was a very tumultuous year for the MLP market, with the last five months of 2007 one of the most difficult markets in recent memory. In contrast with the first seven months of the year where we saw tremendous strength with the Citi index -- MLP index up over 20%. Volatility in the markets have continued during the first quarter of '08, largely the result of weak performance of the overall equity markets, the turbulence in the credit markets and fears of a recession.

When all the dust settled there was still a very strong gear for MLP sector. The Citi MLP index had total returns of 10.3%, largely driven by very strong distribution growth which was over 11% for the year. Our research is looking for distribution increases in 2008 which are consistent with the double digit growth rates we have seen in the past three years. We expect the MLP equity market to continue to face challenges during the first half of 2008 as concerns remain over the impact of the recession. The continued credit market was in the continued need of MLPs to access the market to fund growth. We believe in a third-party acquisition activity will continue to drive distribution growth in 2008, but the third-party acquisition activity will be in a lower level than 2007. After a short transition period, we believe M&A multiples will decline to reflect the higher cost of capital, so that the accretive nature of the acquisitions, remain intact.

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