income trust

TIMBERWEST FOREST CORP. $14.30 (Toronto symbol TWF.UN; SI Rating: Speculative) is an income trust operating in the forest products industry. It is the largest owner of private forest lands in western Canada. To raise cash, TimberWest is selling land to real-estate developers, and selling non-core assets....

Income trusts as a group are more speculative than most investors realize. They carry a lot of hidden risk, due to the way they are organized as investments, and to the way they are valued by investors. Share prices of many companies rise in price when they announce plans to convert into income trusts. But that leaves a lot of room for share prices to fall when business conditions weaken. Income trusts are generally set up to hand out most of their cash flow to their investors. However, that often leaves them with no reserves to carry them through a period of slow sales and falling asset values....

BCE INC. $26.55 (Toronto symbol BCE; SI Rating: Above-Average) is reorganizing its businesses to unlock shareholder value. The company will combine its traditional telephone operations in rural areas of Ontario and Quebec with those of 53.2%-owned ALIANT INC. $35.30 (Toronto symbol AIT; SI Rating: Above average) into a new income trust called Bell Aliant Regional Communications Income Fund. BCE will assume control over Aliant’s wireless and other operations. BCE shareholders will receive 0.0725 trust units for each share they own. They will also receive 0.915 of a new BCE common share for each old share. Aliant shareholders will receive one trust unit for each common share they hold....

BCE INC. $27 (Toronto symbol BCE; Conservative Growth Portfolio, Utilities sector; SI Rating: Above average) is reorganizing its businesses to unlock some of its value. The biggest part of this plan will combine Bell Canada’s traditional telephone operations in rural areas of Ontario and Quebec with those of 53.2%-owned ALIANT INC. $37 (Toronto symbol AIT; Conservative Growth Portfolio, Utilities sector; SI Rating: Above average) into a new income trust called Bell Aliant Regional Communications Income Fund. BCE will assume control over Aliant’s wireless and other operations. BCE shareholders will receive 0.0725 trust units for each common share they own. Consequently, BCE will own 45% of the new trust and run it, and BCE shareholders will hold 28.5%. Aliant shareholders will receive one trust unit for each common share they hold. As a group they will own 26.5% of the new trust....

MANITOBA TELECOM SERVICES $46 (Toronto symbol MBT; SI Rating: Average) moved up recently after reporting improved profits in the latest quarter. The company is the main provider of local, long distance, wireless and online services in Manitoba. In the three months ended March 31, 2006, Manitoba Tel had earnings of $0.65 a share, up 3.2% from $0.63 a share a year earlier. Revenues fell 1.3%, to $488.8 million from $495.1 million. But that came from declining lower-profit long distance and traditional phone services. Higher profit wireless, Internet and digital television services showed revenue gains. Manitoba Tel is currently restructuring its operations, including its Allstream division, which provides businesses with local, long distance and data services. Manitoba Tel could also enhance its value by selling or spinning off Allstream, or converting its local service unit into an income trust....

ROYAL BANK OF CANADA $47 (Toronto symbol RY; SI Rating: Above average) is the first of Canada’s five big banks to sell car and property insurance policies over the Internet; it already offers life and travel policies online. In the past, Royal could only provide rate quotes; prospective clients had to contact Royal’s insurance operations separately to buy. The bank hopes Ottawa will soon let banks sell insurance through branches. That would cut Royal’s costs and boost profits. Royal Bank is a buy....

HARTCO INCOME FUND $3.10 (Toronto symbol HCI.UN; SI Rating: Average) sells computers and consumer electronics, mainly through CompuSmart and MicroAge retail stores. The fund, formerly Hartco Corp., converted into an income trust last August, and changed its fiscal year end from January 31 to December 31. In the three months ended December 31, 2005, Hartco lost $0.18 a unit on revenue of $177.3 million. That compares with income from continuing operations of $0.25 a share on revenue of $165.7 million in the three months ended January 29, 2005. Hartco blamed the latest quarterly loss on clearance sales of slower-selling products and store closing costs. The units fell $1.50 due to fears that tough competition and falling margins would force Hartco to cut its monthly distributions of $0.05 a unit (the annual rate of $0.60 yields 19.4%). Even if Hartco cut its distributions in half, the units would still yield nearly 10%....

TELUS CORP. (Toronto symbols T $44 and T.NV $44; SI Rating: Above average) is Canada’s second-largest telecommunications provider, after BCE Inc. It provides local and long distance telephone services to roughly 5 million customers, mainly in Alberta, British Columbia and parts of Quebec. It also provides Internet access services to roughly 1 million subscribers. Telus’s revenue slipped from $7.1 billion in 2001 to $7.0 billion in 2002, but rose to $8.1 billion in 2005. It lost $0.51 a share (total $145.8 million) from continuing operations in 2001, as well as $0.75 a share ($235.8 million) in 2002, mainly due to restructuring costs following the Clearnet acquisition. However, earnings improved from $0.92 a share ($324.4 million) in 2003 to $1.94 a share ($700.3 million) in 2005. Most of Telus’s recent growth comes from its wireless division, which is Canada’s largest wireless service provider with 4.5 million customers (36% of the market). The company is also doing a good job of hanging on to its customers, and getting them to sign long-term service contracts....

In 2000, Telus Corp. acquired money-losing wireless provider Clearnet. It looked like a bad move at the time, but it has paid off. In 2005, wireless provided 40% of Telus’s revenue, 44% of its profit and 53% of its cash flow. New services such as video, music and game downloads should continue to spur wireless demand, and Telus’s profits. The stock has risen nine-fold (see box next page) in the past few years, but we foresee further gains. TELUS CORP. (Toronto symbols T $44 and T.NV $44; SI Rating: Above average) is Canada’s second-largest telecommunications provider, after BCE Inc. It provides local and long distance telephone services to roughly 5 million customers, mainly in Alberta, British Columbia and parts of Quebec. It also provides Internet access services to roughly 1 million subscribers. Telus’s revenue slipped from $7.1 billion in 2001 to $7.0 billion in 2002, but rose to $8.1 billion in 2005. It lost $0.51 a share (total $145.8 million) from continuing operations in 2001, as well as $0.75 a share ($235.8 million) in 2002, mainly due to restructuring costs following the Clearnet acquisition. However, earnings improved from $0.92 a share ($324.4 million) in 2003 to $1.94 a share ($700.3 million) in 2005....

In evaluating investments, many investors focus on what we’d call ‘investment outputs’, such as earnings, dividends, cash flow, return on equity, sales growth and so on. These are all important, of course, but you shouldn’t focus on them to the exclusion of what you might call ‘investment inputs’, such as the factors we use in assigning our Successful Investor quality ratings. Investment inputs are harder to work with than investment outputs, since it takes a judgment call to determine their risk or value. To give you a better idea of what we mean, here’s a list of a dozen investment inputs that we look at before recommending an income trust:...