January 27, 2010
Income Trust Conversions Expected to Reduce Payouts and Increase M&A
An overwhelming majority of Canadian income trust executives expect reduced cash distributions to investors will follow the implementation of federal tax changes at the end of this year and two-thirds anticipate an increased level of merger and acquisition activity in the sector, a Harris/Decima survey indicates. The survey was conducted on behalf of BarnesMcInerney, Stikeman Elliott and Computershare/Georgeson.
With approximately 165 income trusts currently operating in Canada set to lose their tax advantage as new legislation comes into effect on January 1, 2011 – and conversion to a corporation a likely option for most trusts – Harris/Decima surveyed 82 C-level trust executives by telephone during late November and early December 2009.
Notable results from the survey include:
– 84 percent of trust executives expect that conversion to a corporation will trigger a reduction in distributions/dividends currently paid to investors
– Two-thirds (67 percent) of executives expect increased M&A activity in the trust sector leading up to January 1, 2011
– 59 percent believe that explaining distribution/dividend sustainability and demonstrating a clear strategy are the most significant communication challenges
– Half (49 percent) of respondents see no change in market valuations for converting trusts, with 65 percent expecting a modest turnover in their investor base and 29 percent expecting significant turnover.