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Subject:  Re: Opinions on APLE REIT Date:  9/23/2019  10:42 PM
Author:  joelcorley Number:  85137 of 85581


Kingran wrote, I thought generally preferred's are not treated as partnership units. Is this something special to ET?

To which you replied, Yes, that's my understanding also.

The way you can tell, I think, is there is no capital account recalculation on the annual K-1. Instead, the distribution is just treated as an interest-like expense, wherein you actually hold no partnership units. At least that's how I read it.

I am 110% certain. I have very recent, very relevant experience informing my assertion. In 2018 I made the mistake of purchasing ETP-D in my 401(k) brokerage link account. Around tax time I received a K-1 and the K-1 distribution package in the name Microsoft 401(k) Trust, FBO Joel Corley. (I work for Microsoft, FWIW.) That's when I dug into the details and sold.

The prospectus clearly identifies the preferreds as partnership units - though it may have been unclear to me what the ramifications of that were at the time I made the purchase. However that is cleared up when you read the section on dividend distributions. A key difference is that the ETP-D's prospectus creates a contractual obligation to assign dividend payments from specific sources of income (or return of capital) ahead of the common. In fact it looked like all of ETP's preferreds have this feature.

My guess is that all publicly traded partnership have to issue preferreds in much the same way. Partnership or corporation, preferreds have to adhere to the tax rules associated with dividends distributed by the entity. And preferred stock is part of the capital structure. In fact preferred stock is considered part of the owners equity - even for corporations - so payments must comply with the tax rules for that entity - ie: a partnership. These rules are different for a corporation or trust.

It was close, but fortunately I hadn't been paid enough in dividends for it to become an issue. However Fidelity followed that forwarded K-1 up with a nasty notice telling me I had a week to liquidate the shares or they would do it for me. (They allowed this purchase in a retirement account but do not permit the purchase of many other preferred stocks! Idiots.)

- Joel
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