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Frequently Asked Questions - Click on the question below for a response:
What is a Master Limited Partnership?
How is an MLP different from a corporation?
Are MLP distributions guaranteed?
What are the incentive distribution rights?
Why can cash distributions from MLPs be tax deferred?
How can MLPs pay out more in cash distributions than they are generating in net income?
What are the primary drivers of PVR's business?
How do I access information regarding the limited partner units?
When are PVR's cash distributions paid?
Does PVR offer a Direct Purchase Plan (DPP) or a Dividend Re-Investment Plan (DRIP)?
As an investor, will I receive any tax information from PVR?
Can I hold MLP units in my individual retirement account (IRA)?
Do I have to file tax returns in all the states listed in the tax package?
What should I do if I need to correct information on my tax package?
If I have other questions or would like a copy of the Partnership's annual report or other written documents, how can obtain them?
What is a Master Limited Partnership?
A Master Limited Partnership, or MLP, is a limited partnership the interests in which (known as units) are traded on public stock exchanges. An MLP has one or more general partners that manage the partnership, and many limited partners, which provide capital to the partnership but have no role in its management. When an investor buys a unit in an MLP, he or she becomes a limited partner. PVR's general partner is Penn Virginia Resource GP, LLC, a subsidiary of Penn Virginia Corporation (NYSE: PVA).
How is an MLP different from a corporation?
A corporation is a legal entity, separate from its shareholders and employees. The entity has liability for all obligations of the corporation. The shareholders contribute capital, but have no liability to creditors, taxing authorities, or other parties that may have a claim against the corporation. The corporation is also treated as a separate entity for tax purposes and must pay taxes on its income. If there is any income left after corporate taxes, capital investment and other uses, it may be passed on to the shareholders in the form of dividends. Shareholders then pay taxes on the dividends they receive. Since the dividends passed on to shareholders have been taxed once at the corporate level and once at the shareholder level, it is said that corporate income is "double taxed."
An MLP is not considered a separate entity, but rather is an aggregation of all of the partners. For tax purposes, a partnership is treated as a "pass through" entity, meaning that there is no income taxation at the partnership level. The partnership's income is treated as having been earned by all of the partners and is therefore allocated among all the partners in proportion to their ownership interests in the partnership. All other items that figure into the income calculation, such as gains and losses, depreciation, etc., are also allocated to the partners. Each partner is then responsible for paying tax on his or her share of the income. Thus, partnership income is said to be "single taxed."
MLPs make cash distributions to their partners, usually on a quarterly basis. Each MLP is governed by its partnership agreement that specifies the manner in which cash distributions will be made to its general partner and limited partners. Generally, an MLP's partnership agreement mandates that it distribute 100% of its available cash flow (defined in the partnership agreements, and often referred to as distributable cash flow) to its unitholders within 45 days after the end of a quarter. Distributable cash flow generally means the amount of cash flow that is available to be distributed to partners after expenses, such as interest payments and maintenance capital expenditures, have been paid. The general partner has the discretion to retain a portion of the distributable cash flow in the partnership in order to meet its needs by making reserves. Most MLPs have fiscal year ends in December; therefore distributions are typically paid in mid-February, May, August and November, as is the case for PVR.
Are MLP distributions guaranteed?
No, an MLP's cash distributions are not guaranteed and are contingent on its ability to generate distributable cash flow.
What are the incentive distribution rights?
“The incentive distribution rights (IDRs), also known as the "high splits", give a general partner the right to an increasing percentage of the incremental distributable cash flow generated by a partnership as the per unit distribution to the partnership's limited partners increases. The general partner's share of incremental distributable cash flow in most MLPs starts at 2% and escalates to higher levels such as 15%, 25% and 50%. Each MLP's partnership agreement defines the target distribution levels and the corresponding "splits" on the incremental distributable cash flow. The IDRs are generally thought to incentivize the general partner to rapidly grow the distributions to its limited partners. PVR's IDRs are determined based on annualized distributions as follows: Less than or equal to $1.10 per unit - 2%; greater than $1.10 but less than $1.30 per unit - 15%; greater than $1.30 but less than $1.50 per unit - 25%; and greater than $1.50 per unit - 50%.”
Why can cash distributions from MLPs be tax deferred?
A unitholder's initial tax basis in his or her units will generally be the amount paid for the units. Generally, a unitholder's basis is adjusted upward by the amount of income allocated to him or her and adjusted downward by the amount of cash distributions received by him or her. In most MLPs, the amount of cash distributions received by a unitholder exceeds the amount of income allocated to the unitholder. A unitholder will pay their taxes based on the amount of income allocated to him or her. The difference between the amount of cash distributions received by a unitholder and the amount of net income allocated to that unitholder will be treated as a "return of capital" to the unitholder and will reduce the unitholder's basis in the units. Approximately 80% of PVR's cash distributions are currently treated as a return of capital.
How can MLPs pay out more in cash distributions than they are generating in net income?
The answer has to do with the way that depletion and depreciation expenses are treated. Depletion and depreciation expenses are a means of allocating the cost of a long-term asset, such as a coal property or a pipeline, over its useful life. They are called "noncash" expenses because cash is not actually being paid out for the depletion or depreciation of the long-term asset. A typical corporation must reinvest a substantial portion of its cash flow in order to replace its equipment, keep pace with technology, remain competitive or expand its business. After these payments are made, any remaining cash flow can be paid out to shareholders in the form of dividends. MLP assets, such as coal reserves and pipelines, however, are generally long-lived; require very little maintenance; and are not subject to major technological changes or physical deterioration. It is for these reasons that an MLP can pay out a very high level of its cash flow to unitholders without hurting the long-term basic earnings power of the business.
Where is Penn Virginia Resource Partners, L.P.'s stock traded? What is its stock symbol and how can I make an investment?
Penn Virginia Resource Partners, L.P. is a Master Limited Partnership traded on the New York Stock Exchange under the symbol "PVR." As a publicly traded security, the units are available through retail brokerage services.
What are the primary drivers of PVR's business?
PVR has two business segments: (i) coal land management and (ii) natural gas midstream. The principal drivers of the coal land management segment are volumes of coal mined by its lessees on its properties and the royalty rate per ton of coal sold, which is heavily impacted by coal market prices. The principal drivers of the natural gas midstream segment are the volume of natural gas supply connected to its gathering/processing systems and market prices of natural gas and natural gas liquids.
How do I access information regarding the limited partner units?
As a publicly traded partnership, PVR is required to file financial statements with the U.S. Securities and Exchange Commission. Past prospectuses are available for viewing by accessing the SEC Filings section of this website. Please be aware that any information contained in a prospectus is current only as of the date of its publication. For the most current information on PVR, access the Partnership's most recent Form 10-Q and Form 10-K, both of which are available in the SEC Filings section of this website. In addition, PVR holds quarterly conference calls with the investment community. The calls coincide with PVR's quarterly earnings releases and are accessible via webcast through this website. PVR may from time to time hold conference calls to discuss major corporate events such as acquisitions.
When are PVR's cash distributions paid?
Upon approval by the Board of Directors of the General Partner, cash distributions are paid quarterly, no later than 45 days following the end of a calendar quarter. Distributions are typically paid mid-month in February, May, August and November.
Does PVR offer a Direct Purchase Plan (DPP) or a Dividend Re-Investment Plan (DRIP)?
PVR does not currently offer limited partnership units for purchase under either a DPP or a DRIP.
As an investor, will I receive any tax information from PVR?
Yes. As a partner in a limited partnership, you will be allocated your share of the partnership's income on an annual basis. PVR intends to furnish each individual that owned units during the year with a customized tax package called a Schedule K-1 that will describe the unitholder's respective share of PVR's net income, gains, losses and deductions for the year. You must then utilize that information when filing your tax returns. Unitholders can usually expect to receive their Schedule K-1 by the middle of March. By the end of February, unitholders can also access online copies of their Schedule K-1 by accessing the Tax Information section of this website.
Why doesn't the taxable income that I am allocated equal the cash distributions that I have received?
Taxable income includes noncash expenses such as depletion and depreciation, while the cash distributions that you receive are based upon the cash flow generating ability of the partnership's assets.
Unrelated business taxable income, or UBTI, is income that is taxable to an otherwise tax-exempt institution or account. UBTI usually comes into play for individual investors when they consider holding MLP units in nontaxable accounts such as IRAs. PVR has rental activities which generate UBTI, although this has been a UBT loss over the last several years due to accelerated depreciation for tax purposes. PVR's natural gas midstream business will also generate unrelated business taxable income or loss.
Can I hold MLP units in my individual retirement account (IRA)?
Yes, you can hold MLP units in an IRA, however, only the first $1,000 of UBTI from all sources is excluded from taxation. In other words, to the extent that you were allocated more than $1,000 in aggregate UBTI, the excess would become taxable even though the units are held in a tax-exempt account. Since PVR is prohibited from offering tax advice, we strongly recommend that you consult a tax advisor regarding the tax ramifications of MLP ownership.
Do I have to file tax returns in all the states listed in the tax package?
Tax laws vary among states and ownership of our units may require you to file a return in a given state even though you do not reside in that state. Please consult your tax advisor for assistance in this area.
What should I do if I need to correct information on my tax package?
Please contact K-1 Support toll-free at (877) 699-1092.
If I have other questions or would like a copy of the Partnership's annual report or other written documents, how can obtain them?
Questions and document requests can be handled in a variety of ways:
1) email to invest@pennvirginia.com;
2) call Jim Dean at 610-687-8900,
3) by mail to Penn Virginia Resource Partners, L.P., Attn: Jim Dean, 100 Matsonford Road, 3 Radnor Corporate Center, Suite 300, Radnor, PA 19087.
You may request annual reports, news releases, SEC-filed documents, or any public documents that the Company distributes in the same manner.
