What is a Master Limited Partnership or MLP?
A Master Limited Partnership is an investment vehicle that is structured to pass through its Qualifying Income to its investors without entity level taxation, which provides significant tax benefits to the individual investors. MLPs are generally structured as Limited Partnerships although some MLPs are structured as Limited Liability Companies.
What is Qualifying Income?
- Interests and dividends
- Real estate rental income
- Income from natural resource activities including upstream and midstream oil and gas operations
- Income from commodity investments
- Capital gains derived from the sale of assets used to generate the types of income noted above
Are there different kinds of MLPs?
Yes. While nearly all MLPs are natural resource-related, there are three basic kinds of MLP’s:
- Publicly Traded Partnerships – these are typically AMEX/NYSE or NASDAQ listed partnerships
- Private Partnerships – these are typically held indefinitely as passive investment vehicles – think O&G drilling programs
- Private Pre-Public Partnerships – these are built to eventually trade in secondary private or public market transactions from day one. These are fully reporting 12g partnerships so that Units can trade over the counter within Rule 144 guidelines.
MLP Market.com focuses exclusively on Private and Pre-Public Partnerships.
Why is the typical Cycle-to-Market for a Pre-Public MLP?
- Assets are gathered in mid single digit multiples in years 1 and 2
- Secondary financing is achieved at high single digit multiples
- Offered to the public in low to mid teen multiples
Are MLPs similar to Royalty Trusts and REITs?
Similar to MLPs, royalty trusts and REITs are yield-oriented investments that pass through income to investors. However, unlike MLPs, royalty trusts and REITs have statutory distribution minimums.