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Bob Carey
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  Two Investment Structures Designed to Generate Cash Distributions to Investors
Posted Under: Themes
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View from the Observation Deck

  1. Both Master Limited Partnerships (MLPs) and Equity REITs are designed to distribute nearly all of their respective revenues to shareholders.
  2. MLPs are structured as partnerships, while Equity REITs are usually structured as corporations. Both trade on the major stock exchanges.
  3. Assuming compliance with applicable tax regulations, neither structure pays income taxes. Taxes are typically incurred at the shareholder level. Taxes on MLPs are inherently more complex.
  4. The vast majority of MLPs are energy-related, with a focus on distribution and storage. Equity REITs involve real estate properties.
  5. The Alerian MLP Index is comprised of 50 energy MLPs. The FTSE NAREIT All Equity REITs Index has 123 holdings.
  6. As the chart above shows, the energy sector has performed considerably better than real estate since 10/9/07 (all-time high in S&P 500).
  7. The price-only cumulative returns for both indices were as follows: Alerian MLP Index (+22.4%) vs. FTSE NAREIT All Equity REITs Index (-25.0%).
  8. When you include income distributions their cumulative total returns were as follows: Alerian MLP Index (+63.9%) vs. FTSE NAREIT All Equity REITs (-8.3%).
  9. While the disparity in performance is huge, most people are keenly aware of the plunge in real estate values in recent years. So it is self-explanatory. Right?
  10. But there is more. The returns posted from 3/31/00-3/31/06, which was arguably one of the best periods for U.S. real estate in history, still favored MLPs.
  11. The price-only cumulative returns over that period were as follows: Alerian MLP Index (+139.8%) vs. FTSE NAREIT All Equity REITs Index (130.1%).
Posted on Thursday, November 3, 2011 @ 9:13 AM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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