CI Financial Corp (CIXX) 2007 Q1 法說會逐字稿

Welcome to the CI Financial income fund quarterly results conference call. [OPERATOR INSTRUCTIONS] This presentation contains forward-looking statements regarding the future performance of CI and its products, including its business operations and strategy and financial performance and condition. Although management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause actual results to differ materially from expectations include, among other things, general economic and market factors, including interest rates, business position, changes in government regulations or in tax laws and other factors discussed in materials filed with the applicable securities regulatory authorities from time to time. EBITDA, operating margin, pretax operating earnings, adjusted EBITDA and earnings, distributable cash and free cash flow are non-GAAP earnings. Non-GAAP earnings measures. However, the management believes that most unit holders, creditors, other stakeholders and analysts prefer to include the use of these performance measures in analyzing CI's results. A reconciliation between income and EBITDA is included in the quarterly financial statements available at www.CI.com. I would like to remind everyone that this conference call is being recorded on Thursday, November 9, 2006 at 4:00 p.m. Eastern time. I will now turn the conference over to Mr. William Holland, Chief Executive Officer of CI Financial Income Fund. Please go ahead, sir.

Thank you very much. Our first quarters in income trust ending September 30 was very, very good, a strong quarter. I will admit that October has been a tad more challenging, though. Steve and I will briefly go through a couple of highlights for the three-month period primarily ending September 30, then we'll leave 15 or 20 minutes at the end to take some questions. Some of the highlights for the three months ending September 30, include assets under management on a year-over-year basis up 12%. Pretax operating earnings up 13%. EBITDA per share up 18% and probably most importantly, our Asset Management operating margins remained constant on a year-over-year basis. Our distributions, obviously now that we're an income trust, went up considerably, tripling over the last year.

Asset growth to October 31, has continued to be very strong. CI's assets are up approximately 19%, below two of the big banks and above all of our competitors. Relative sales growth has also been very strong. On a year-to-date basis, CI's had net sales of approximately $2 billion, again, behind the three big banks but well ahead of all of our competitors. Our nonbank competitors, I should say. Over three months, the story is pretty similar. Top sellers, Royal Bank, TD, we were third during the quarter ending September 30, $276 million, worth of net sales. Again, ahead of our nonbank competitors.

Our performance continues to be very strong. We lead in 4 and 5-star rated funds by a huge margin as we have for the last five years. A point that I think is quite interesting now that more of the business is going to non-Canadian funds, it's certainly not a tidal wave, but we're seeing at the margin, sales start to increase in our non-Canadian funds, 90% of our global assets are in funds that are rated 3 star or better by Morningstar. I'll move the meeting over to Steve MacPhail, who will go into a little more detail on some of the financial aspects of the quarter, then I will wrap it up and we will take some questions. Steve?

Thanks, Bill. My focus is going to be on the quarter ending September 30, 2006 as compared to the four-month period so we have good comparability and that seems generally to be the consensus of what people want to look at. The first chart that I put up here is pretax operating earnings and I've done this to take up the tax differentials that would otherwise show our net income up over 50% because clearly as an income trust, we're not paying tax and we would have had corporate taxes before that.

So what I've done is taken reported income before tax and factored out redemption fees, the significant gain we made last year in invest cap shares of $16.7 million. The variability created by marking to market stock options and DFC amortization, which is a noncash item tied to our prior sales. And this at the end of the day gives us a better picture as to how the fundamental business fared. So, we compare the quarters, that is the quarter ended August 31, 2005, to the quarter ended September, 2006. You can see that our pretax operating earnings rose 17.4 million or 13%. This is consistent with CI keeping its operating margin on the offset management business intact, up 111 basis points, as Bill mentioned earlier.

Looking at some of the items marked specifically, the first one I want to point out, which doesn't show up in the three number, is that during the period, there is a reduction that we took into consideration on future income taxes that if you look in the four-month numbers, and this shows up in a lot of other people's reported numbers coming up right now and it's really just a reduction in the future income taxes that came about because of a reduction in legislative corporate taxes scheduled to take place in the future and the effect on CI was about $0.13 a unit or $37 million. The increase in CI price of 1% from June 30, to September 30, created a net equity-based expense, again, from the mark-to-market of about $0.01 per unit. Our DFC amortization affected the results by about $0.02 a unit, reflecting CI's high level of sales over the last two years.

Overall, our SG&A expenses were down 8.5 million or 12% from the prior year compared, actually, to an increase in assets over the same period. And lastly, the operating margin on our asset management business, we're happy to say, was unchanged at 111 basis points year-over-year. Looking at revenues, if we adjust a gain for the gain on invest cap shares and we take out the expenses recovered for the funds, which were a cost recovery, we can see that overall revenues jumped 8% from the prior year. This gives you a better picture of the overall revenue side of the business. On the expense side, as I mentioned, our total SG&A dropped from 80.2 million to 66.2 million. Again, factoring out the component based on the mark-to-market of our discontinued option plan, you can see that SG&A dropped 12% overall. But what I'd like to point out is the bottom of the chart is that we made gains in both our asset business and asset administration business as both areas benefited from cost efficiencies in the business. You see the asset management SG&A went from 51.1 million -- sorry, went from 58.2 million down to 51.1 million. Again, that's at a period where assets were up significantly. Our asset administration business, the cost went from 13.2 million down to 11.8 million, 11-point drop year-over-year.

Looking at some of the other major expense categories, investment dealer fees, number one, which essentially are the payouts or commissions on the dealership grid at Assante and IQON rose about 3% year-over-year. Amortization of DSA was up $6.6 million, as I discussed earlier. And trailer fees rose primarily as a result of the higher asset levels that Bill pointed out in a previous slide.

In July, at our last conference call, I provided a forecast for distributable income to support the $0.1675 monthly distribution that we announced that we were paying. And I just wanted to compare it to what actually happened. On a comparative basis, EBITDA was slightly higher over the period and the percentage of DSE, financed by internal cash flow versus debt, was in line with our projections. You can also see interest was up slightly on a -- from our projections because of a higher level of buyback of our shares. Overall, our distributable cash we calculate at 147 million for the period versus what we had forecast at 145. Which on a per-unit or per-share basis is 52 based to 51. If you take that down to a monthly level, that calculates out to $0.1733 per month, which, again, is slightly better than the $0.1675 that we paid out.

I also want to point out that for the six months ended December 31, 2006, the $0.1675 monthly distribution we have paid will do two things. First, it will ensure we haven't left any taxable income in CI and second, we will not have a return of capital to investors. So, basically paid just the right amount. We didn't overpay. We haven't underpaid any of our investors over the period. That takes me to where we are today.

As you know, we announced a distribution increase to $0.18 per month or $2.16 per unit annually. As of yesterday, that put the distribution yields on CI at 9.11%. If nothing else changes, and even if there are no further distribution increases for the next four years, at that price, the investor will get a 9.11% yield every year. If we roll forward and apply the stated corporate tax in 2011 of 31.5%, simply apply that to the 2.16 and the 2.16 distribution becomes the equivalent of 6.24% dividend yield. And that, I think, is a very important thing to recognize today. Now, from CI's perspective, we found this to be a very attractive situation.

If you look at the average number of shares for the period ended September 30, there are 284.2. As of November 8, we have 280.1 million shares outstanding. From November 1, to November 8, right after the announcement by the federal government, we've bought back 3.8 million shares at an average price of $23.95. The yield on those shares purchased at 2.16 is over 9% and when we compare that to our cost of borrowing, we have picked up a yield advantage of over 440 basis points to our borrowing cost and this will provide our unit holders with an annual benefit of $4 million.

I want to touch briefly on CI's status as a trust and we've made an announcement on this already. At this point if time, we continue to expect to be a trust until 2011. And we see no impediments to growth during this period by continuing as a trust. We'll continue to optimize distributions to our unit holders so we don't have double taxation with corporate taxes but we won't overdistribute creating a return in capital at the same time. We will pay out what we earn. I will caution that conversion back to a corporate structure is contingent on the promised tax reduction and tax parody occurring federally. The corporate tax reductions occur provincially and specifically in Ontario, where the majority of our operations are located. And that legislation is announced that we are advised will take place to allow a simple, tax-free rollover back into the corporate structure that CI had prior to conversion. With that, I will turn it back to Bill.

I have to admit we've clearly faced some business issues here, the sudden resignation of Kim Shannon and really the shocking change to income trusts over the last couple of weeks. I would say this, though, that our assets today are at all-time highs. Our asset as of October 31, were 4% up on the quarter or for the month of October and they are more than 1% higher today. So, I think that our positioning, given our strong performance, our record level of assets, the fact that Danny Bubis, the new manager who is taking over from Kim Shannon has been incredibly well-received. The fact that we have a very good lineup of funds that are both Canadian and non-Canadian. I think the outlook is as good as its ever been. I think I will stop at this point and take questions from analysts if there is any.

Thank you. [ OPERATOR INSTRUCTIONS ] Your first question comes from John Reucassel of BMO Capital Markets. Please go ahead.

Thank you. Just a few questions. First for Steve. I guess, Steve, I've always viewed CI as a low-cost operator. I guess I'm surprised to see SG&A is actually down on an absolute basis $8 million sequentially and $10 million year-over-year. So, can you tell us a little bit how you did that?

Well, I'd be giving out some competitive secrets.

I guess is it head count, is it new efficient systems?

Well, certainly it's a combination of all of those. We had a number of things that came into place, renegotiating certainly on things such as technology, real estate costs that had come down et cetera. It was a combination of things that came down and we certainly, we completed our staff restructuring that had taken place. So, all of those things came together that allowed to us put together a very good quarter.

I mean is this absolute level obviously a rise with assets -- or it could, but is this a new base level here? What you're telling me is this wasn't a one-off event? Is that true?

I think every time we say we can never do anymore on costs, but we always keep looking at more ways to be more efficient. No, it's not a one-off thing where all of a sudden we come back to the next quarter and surprise, things are up $15 million. It's not like that. It's basically we have every employee in the Company looking for ways to do business more efficiently. That's just the culture here. And that's what everyone did. So, that's the way it's going to be.

Okay. Bill, a couple of questions for you. Talk in the paper yesterday about concern converting back to a Corp., if there was an acquisition or something of that nature. I know it's early days, but have you ever given consideration to maybe paying someone a present value of what you might pay them as a trust versus a corporation, pay that as a special divvy and just get it over with and convert back to a Corp.?

I think it's very unlikely we will convert back to a corporation before 2011. It's our understanding that we will be able to issue units for an acquisition up to a reasonable point. So my guess is we can issue 30 or 40% of our unit base, but probably not 90 or 100%. So, our best guess here is that we will do nothing other than act like a corporation with a four-year tax holiday from here on in.

Okay. And are you -- when you say maximizing and not paying out capital, does that mean -- you know, there was talk at one point of borrowing all of your money to finance the DFC and then just pay out the rest. Is that -- are you still going to do 50% borrowing? Or what about the thought on funding the DFC with all debt?

John, I'd say at this point in time, what we have done and as I point open one of my slides, I mean we have borrowed money to buy back our shares because we thought that was a good investment. We wouldn't finance more of our DSE with debt if it would end up with an adverse tax consequence to any of our unit holders. And if we pay dividends or return on capital, people with low-cost bases, it actually does have a bit of a negative effect. So, at the payout we have right now, I think that's the way it works, which is kind of in that 55% range.

Okay. And I guess last question, I know we only at six or seven business days in November but be curious to see, October, I would have characterized a better inflow month given Kim Shannon leaving. What is kind of the progress on the net flow so far for November? And I can't remember what happened with AGF, but is there the potential to take remedies against legal or other against to prevent the net redemptions? What are your options on that front?

The sales -- I think the gross sales from November are exceptional. Our growth sales are higher now than they were at the beginning of October. Our redemptions are a bit higher and our retail flows are still very positive at CI. So the -- the income trust -- that one-day drop caused one of our notes to be redeemed, but that's kind of one-off business. I would look at this as being -- the November to being pretty similar to October in terms of sales here.

So no -- what is it, Canadian investment fund, obviously redemptions are higher there but--.

Oh, much higher.

But you're picking it up in other parts?

Yes, I mean our gross sales are still good. I think that we will continue to redeem out of the Canadian investment fund -- I mean it is a $6.5 billion fund, but I don't think it -- so far it hasn't been serious and it hasn't put the Company into net redemptions or even close. The other thing -- there was a couple of analysis that came out that showed that we had huge amounts of income trust in our balance fund -- in our balance fund. Our income trust exposure to our balance fund was 1%. Our balance fund sales are very strong, they are exceptional, even. We have seen sales improve since the income trust announcement last week. Obviously one of the reasons is the market has been so very, very strong. But I expect that the Canadian Investment Fund will have net redemptions. I don't think that it's -- that they will be crippling by any means, but I expect them to -- the fund to have redemptions for at least the next few months.

I think in terms of taking a legal position, the one thing -- I mean you don't have to be Perry Mason to understand that there's been a breach of a contract here and I think that the -- the sub advisor agreement and the contract we have with subadvisors are so important and the validity of them is Paramount to our business. Because different from an employee -- if a money manager leaves our firm, we still have the rest of his employees there to respond. If the subadvisor leaves, the whole team leaves, so, the subadvisor and that contract have to be held to a much higher standard. There is no doubt that this contract has been breached. There is no doubt that it's brand encouraged breached. Whether or not we take further action, right now we're just tallying up what we consider to be a reasonable assessment of what a reasonable person would say the damages are. We've never brought a suit against anyone or any firm before, so, it's not something that we look forward to doing, but in this case, it's probably something we will do, yes.

Okay, thank you.

Your next question comes from Andre Hardy of Merrill Lynch. Please go ahead.

Thanks. Two questions. Also on the SG&A, Steve, do you have a rough estimate for us, maybe, of what component of the SG&A's fixed? And what component should move with markets? And secondly, in terms of rough numbers and the tax that you will save over the next four years versus the incorporation, is 7 to 800 million in the ballpark?

Let me answer the questions in order. The SG&A we have, I haven't done a breakdown of actual fixed versus variable on that, but I would say that about 50 -- 50% is variable and then the rest would be fixed. Only to a point. I mean everything is fixed to a point. And what you have to understand, Andre, is we often have a fixed expense but we can renegotiate a fixed expense and it becomes a lower fixed expense, as you go along. So, what you classify that as, I have no idea.

Employee costs, we have to pay our employees more each year. Just like you like to get a raise each year, we pay our employees more each year so I would call it the variable expense, only one way upwards that we seem to have to pay more, we certainly have flexibility on bad years we would pay lower bonuses. So, I think it just depends on how you look at it, that whole expense. But I don't see a lot of downward possibilities on that expense itself, to answer your question. On the tax savings itself, I guess I haven't done the calculation over four years, but if we took 700 million in EBITDA, multiplied it by 4 and multiplied that by 36%, that gives you the tax number. Whatever that is. If you worked that out to be 800 million, I guess that's the number. But that would be my best guess today.

Yes, I think you'd get a higher number if you did that. Wouldn't you have to take off the amortization?

Yes.

Okay. All right. I was doing that number because if an acquisition came up and the government told you you'd have to go to a corporate structure, that's when this calculation would become very relevant. What's the benefit of a potential acquisition versus the benefit of a tax shield?

I would -- I would say just to be fair on the calculation that the -- the change to the income trusts have occurred but I don't believe the government is trying to shut down Canada here. And I think if we had a situation where CI, in 2.5 years had an attractive acquisition and it was going to start out as something else and then move into the corporate structure closely thereafter, I think there's some latitude that you could work with them on that. And that's what we've heard, is that there's some latitude to work with them on that. They're not trying to shut the country down here, and that's an important thing to know when we look at acquisitions going forward.

Okay, thank you.

Your next question comes from [Sean Marriott] of Credit Suisse.

Hi, good afternoon. Along the lines of what Andre is asking about, maybe I will ask you a more general question. Do you see any changes to the acquisition landscape given changes in the proposed trust laws?

I don't, in the short-term, see that it's going to change the consolidation environment but -- but events like this, often, over time, evolve into more significant events and I think it's possible but I don't think you could look at it today and say this is going to change a company's prospects so dramatically that they're willing to sell. And if there was companies like that, I'm not sure we'd be interested in them. The other thing that -- the market has been so good since this announcement and Canadian equity flows appear to be so strong that I'm not sure that for most of the large or more interesting companies anyway that this will appear to be much more than a blip that was -- that lasted a couple of days. So if it turns into a more significant event, it's certainly hard to see right now.

Okay, fair enough. And I guess the second question, going back to John's question, you mentioned 30 to 40% of your trust units you'd be allowed to issue. Is that a one-time item or is that over the next four years you figure you could--?

I think what they're trying to convey to trusts -- or businesses that have the trust structure is that -- that you will be able to continue your normal course of business and normal course of acquisitions but truly transformational things like CI going out and trying to buy Telus I think would be seen as something they would stop in their -- right in the tracks. So, it appears it's not someplace where they're trying to be dogmatic and saying we're not allowing any issue of new units. It's my understanding that we can continue business as normal and if it the appropriate acquisition end market comes up that there would be no reason why we couldn't pay for it in trusting it. So, of course, realizing that those trust units will be converted or taxed at a corporate rate in the relatively short future, in the near future. I think one of the reasons why they picked four years, as opposed to eight, which seems a much more reasonable wind-down period from my perspective for investors is for just that reason, so that companies could continue to issue units and it would be a very short period of time before they were converted to tax-paying entities or back to corporations, anyway.

And I guess, again, that 30 to 40% sounds like it's pretty flexible from the government's perspective?

That's the sense that I've gotten, is that that they're not -- truly not trying to shut down the business of income trust, they're just trying to shut down the structure. So, allowing acquisitions during this period of time seems to me to be normal course of business. I think that they would have a very dim view if we were trying to double or triple the size of a company and buying businesses outside of our main business.

Okay, and final question, changing topics here, on page 12 and 13 of the MD&A, you've made some cautionary statements with respect to the SG&A and maybe goes back to John's question and the fact that you guys are the low-cost operator and maybe you've reached a new bottom here. I looked in the previous four quarters and I didn't seem to see any cautionary statements like this, so, maybe if you just add some color to that? Offsetting the pressure on margins? On SG&A?

Sure. I'll just say on the cautionary language itself, as MD&A disclosure continues to evolve with companies the tendency is to hedge yourself more and more on your costs themselves. And I guess as Andre Hardy asked on the variable versus fixed expenses, clearly as assets go up we do have variable expenses and some of our subadvisor agreements are based on assets under management and we've had very strong performance on assets under management and so, hence, you would expect one component of our costs to go up. So I wouldn't read anymore into that, other than what we're trying to point out is just because we had made significant achievements year-over-year, people shouldn't think that we can keep doing this thereafter. I mean that's not a practical business delusion at the end of the day. There are times we're going to spend money to grow our business when we have to and there are times if markets go up, which, obviously is a great thing. I mean the in fact that we're up 5% from that quarter, it's a great thing. It will push revenues up. It will also push expenses up.

Okay, great, thanks a lot.

Your next question comes from Timothy Lazaris of GMP Securities. Please go ahead.

Thanks. Two questions. I don't want to beat this acquisition topic to death, but one of my thoughts was that perhaps because the market is still struggling with how to value good companies and bad companies that are income trusts, I'm wondering if sellers are going to be struggling with the same issue, considering part of the consideration would have to be, or likely be units. Do you get a sense that that's going to at least delay, any near-term consolidation in the market, particularly by people like yourselves, that are trusts? And then I will follow-up with another question.

I don't know. I mean -- my view is -- really, Tim, it's just business as usual. And that -- a deal that made sense a week ago or a month ago probably makes sense in the same context today. I don't see -- I really don't see -- I don't see any changes that have occurred, that would make me believe that the consolidation environment is any different today than it was.

So, you think that -- the consideration issue is not one that really exists. They know what they'd be getting and it would just be a question of fair value and so on?

I actually think that the certainty is greater now. I mean I'm much more inclined to buy income trusts today than I was a month ago. A month ago, I always had the worry that they might do something like they did. Now there's certainty. We know that income trusts will remain in the present form for 4 years and 2 months and putting a net present value on the tax advantages is pretty easy. I -- if anything, I'd say it's probably easier just because of the certainty that is now out there.

Okay, Bill, thanks. And then about the distribution increase that you announced today, there's two ways of looking at that. Obviously your assets are up, which I think is amazing, considering the volatility in income trusts, in particular, but is the increase in the distribution more reflective of being too conservative when you came out of the gate? Or is it really more indicative of how comfortable you are with, sort of the rolling next 12 months? Because I wouldn't have expected you to raise distributions already and I think that's a pleasant surprise. So, I'm wondering what the thinking was around that?

Tim, when -- I wouldn't say we were too conservative for that initial period at all. You've got to keep in mind that we did pay a bit of an extra distribution by paying a full month on July 15. So, people got $0.1675 when the reality is 15 days into an income trust, they should have only got, you know, $0.08 and change. So I think we were bang-on for the first six months and with we forecasted that we looked over the whole six-month period. But now that we've been an income trust and we see some of the efforts that we've put in place come into play, we feel more than comfortable going to the level we've got at $0.18 and we will review it every quarter. And at the end of the first quarter, if we like what we see, then the distribution could go up, who knows? I'm not making any prediction at this point in time. But we just will review it as we go forward. But we certainly set that initial distribution to cover the six-month and it looks like we are pretty -- we are pretty accurate in our assessment.

And Steve, just because I know -- I know it would be beneficial for at least the next four years to pay out 100% of what you can pay out, obviously to take advantage of the tax situation, would you likely be in a situation -- there's other trusts that sort of have a distribution that they pay and then they do a catch-up to make sure that they've paid out 100% around year-end. Is that something you've contemplated to make sure there's no leakage at all?

Absolutely. We don't want to pay taxes and we absolutely would look at it. I think we'd do our best to try to get as close as possible and the nature of our business is that by the time we get to the last quarter, we have a pretty good idea of how close we are so I think we can adjust the distribution so we start the year out a little on the conservative side and as we see how things play out then I think we'll -- you know, we'll look how the last half of the year looks. And that's the best we can do. We're learning as we go along here, we're not experts on income trust by any stretch.

Okay, well, thanks for that. And in case anyone didn't say this, congratulations, I think it was a remarkable quarter.

Thank you.

Thank you.

Your next question comes from [Steven Bowland] of RBC World Markets. Go ahead.

Good evening. Just a couple of quick questions. In terms of the buyback, do you expect to be as aggressive going forward in the next little while?

It's hard to predict. As I said, we look at our company now as a corporation with a four-year tax holiday. And as a corporation, we aggressively bought back our own stock. I constantly remind people that we went public in 1994 with a treasury issue of $25 million and we paid out $1.6 billion in distributions, dividends, and share buybacks since then. Our policy would be to aggressively buy back shares, if the price is right, we're borrowing money right now at 4.5%. The yield on it is 9 and change. It's a pretty compelling carry trade just to start out with. So, we will continue to look at buying back shares. We will likely, over the next four years, buy back shares and we will look at January 1, 2011 as converting back to an income trust with the debt equity ratio that we would want to have. So buying back shares is probably a -- you could probably assume that's going to be a large part of our strategy.

Okay. That's great. Just in the disclosure, I guess maybe this is more for Steve, but using the terminology on your distributable cash flow I guess, maintenance DFC. And it looks like it's being fixed at 15 million a quarter. Is that -- should we expect that in the calculation going forward?

That calculation is our best estimate today. What you have to remember, Steve, is there's this whole dialogue going on with the CICA, et cetera, on how a definition of distributable cash, that we're working with, and basically it refers to -- in our calculation we've done modeling over an "X" period of time, based on what we thought our business would do, and the amount of DFC we'd have to spend to keep our DFC assets at an equivalent level. And that's what that number represents. If you wanted to get to more detail on it, then you should sit down and talk with Douglas Jamieson, our CFO, because he's really the guy who's done all the modeling work on that and gone through work. And Bill and I both agree on what's gone on there. But that's the essence for that number.

And finally, Bill, because you're sort of looking out four years already, I guess with the 100% payout, I guess this is really incorporating that you will be able to convert to a corporation sort of at parody. I wonder if you've heard or seen or talked to any -- what you're hearing in terms of -- is 245 going to be allowed because otherwise, if it isn't, are you going to run at 100% right to the end?

I'm not sure what you meant by parody?

Well, you put in your disclosure that conversion to corporation is basically contingent on it won't be a taxable event.

Correct.

Correct.

We have been told that it will not be a taxable event.

Okay so that's basically why you can run to 100% for that period of time, then.

But we've paid out 100% of our earnings since 1994. One way or another, we've always paid it out, whether it's been dividends, income trust distributions, or stock buybacks.

What we're hearing just from other trusts, is that some of them are contemplating growing into the tax if they're not going to convert back. So, basically keeping their distribution at a certain payout range and a level, and then basically that would factor into the 30% when it comes in?

From my view that just seems gimmicky. We're going to pay out everything that we earn so we don't pay any taxes and we're going to buy back our shares or make investments in a manner that is accretive and that we end up with a debt to equity structure that we like.

Okay, that's great.

Next we have a follow-up question from Timothy Lazaris of GMP Securities, please go ahead.

Yes, I thoughts of this afterwards. I wondered -- at least in one or two of your acquisitions in the past, you bought companies with tax losses. Does that enter into your thinking right now in terms of acquisitions? Or is that just same business as usual? Because I'm wondering if you actually bought a company that had a tax loss now, do you lose it as a trust?

It wouldn't be our expectation that we would lose it.

So, it would just carry forward similarly to how it would be if you were a corporation, if they're not operating losses, I guess?

Yes, you know what? We're getting some technical acquisition analysis here, but if it had a lot of tax losses, you could probably leave it as a tax loss anyway. So, it might make life a little easier. And the other thing is when we buy these, because as long as they're in the same industry, we can use the tax loss -- you can carry forward -- there is a time value of money here, also. There is many ways to look at it. We wouldn't lose the tax loss. Let me assure you know of that.

Okay, thanks.

[ OPERATOR INSTRUCTIONS ] Gentlemen, there are no further questions at this time. Please continue.

Well, then I think we will wrap it up here. Thank you very much for joining us for our first quarter conference call as an income trust. We look forward to having you join us, I think it is February 13, four our first quarter of 2007 fiscal results. Thanks again and good afternoon. Goodbye.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect your lines.