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Stephen Pincus on "Income trust structure offers unique advantages", The Globe and Mail


Lawyer Stephen Pincus
Area REITs and Income Securities


Excerpt from "Income trust structure offers unique advantages", by Stephen Pincus:

From an investor's perspective, the income trust structure has a number of advantages over traditional debt or equity structures.

Indeed, one of the main advantages of the income trust structure is that it combines the cash flow characteristics of a debt investment with the potential upside of an equity investment. While most investors have focused on monthly distributions, the S&P/TSX Capped Income Trust index, which does not include distributions, has increased significantly since its inception.

Income trust came of age during a market when investor confidence was shattered by various corporate scandals. It is therefore no surprise that income trusts typically exceed the governance requirements of both securities legislation and the rules of the TSX. For example, income trusts have been leaders in separating the role of chairman and chief executive officer and having independent boards.

And finally, regular monthly or quarterly distributions provide significant discipline on management. The need to pay cash each month focuses management on adopting realistic business plans and keeping costs under control.

With these advantages to the income trusts structure, it's no wonder that they have been such a success. As the Investment Dealer's Association of Canada noted in its review of Equity New Issues and Trading for the First Quarter 2004, income trust issuance was even stronger than a year ago (up by 47 per cent).