Davis + Henderson plans to convert to corporate structure
TORONTO, Ontario, Mar 2, 2010, 2010 (Canada NewsWire via COMTEX) — Davis + Henderson Income Fund (the “Fund” or “Davis + Henderson”) (TSX:DHF.UN) today announced its plans to seek unitholder approval to convert from an income trust into a corporation effective January 1, 2011.
This reorganization is being initiated as a result of the Federal Government’s announcement in October, 2006 that changed the way income trusts, such as Davis + Henderson, are to be taxed effective January 1, 2011.
Additionally, the Fund announced its intention to pay quarterly distributions, commencing in 2011, at an initial annualized rate of $1.20 per share. The Fund intends to maintain its current distributions at $1.84 per unit annualized ($0.1533 per unit monthly) for the remainder of 2010. The reduced level of distributions reflects the approximate level of taxes that the Business will be subject to commencing in 2011.
Benefits of Conversion
The Trustees and management of Davis + Henderson believe that the proposed conversion of the Fund’s capital structure is in the best interests of unitholders and the Business and believe the conversion can be expected to provide the following benefits:
<< - Enhanced access to capital markets which will benefit the Business as it continues to expand through acquisitions; - A corporate structure that is expected to attract new investors and provide a more liquid trading market for our securities; and - A simplified tax and legal structure, more comparable to the majority of public companies operating in Canada, providing among other items the benefit of reduced internal and external administrative costs. >>
As well, if the proposed conversion is approved, commencing in 2011, distributions to owners will be characterized as dividends rather than regular income. This provides the benefit of dividend tax credits for qualifying owners thereby reducing the after tax impact on distributions.
Bob Cronin, Chief Executive Officer of Davis + Henderson said “The proposed structural and distribution changes will not alter the Company’s objectives or strategies but are necessary in the context of changing taxation impacts. Since becoming a public company in December 2001, Davis + Henderson’s service offerings have evolved, consistent with our vision of being a leading solutions provider to the financial services marketplace. Over this period, our Company has met its financial objective of delivering stable and modestly growing distributions to unitholders by growing annualized distributions from $1.30 to $1.84 per unit. As we take this next step in our evolution, we believe we are positioned to continue to grow our Business, deliver solid results and support dividend appreciation over the long term.”
Following the conversion, the Board of Directors of the resulting public corporation will be comprised of the current members of the Board of Trustees and senior management will remain the same.
Whether or not the Business converts to a corporation or remains as an income trust, it will be subject to taxes commencing in 2011 that will reduce the amount of cash flow otherwise available for distribution. Had the Business been a corporation in 2009, pro forma taxes(1) would have been in the range of approximately $0.60 to $0.66 per unit.
It is our current intention to pay quarterly distributions commencing in 2011 at an initial annualized rate of $1.20 per share. On a pro forma basis, had distributions been $1.20 per unit for 2009, the pro forma payout ratio(2) would have been in the range of approximately 72% to 75%.
Consistent with past practices, actual distributions will only be made to owners of record based upon a declaration by the Trustees. Among other items, in determining actual distributions, Trustees will consider the financial performance, capital plans, acquisition plans, expectations of future economic conditions and other factors.
Provided the conversion is approved, distributions made by Davis + Henderson beginning in 2011 will be taxed as dividends rather than regular income as they are today. Certain investors may be entitled to dividend tax credits which would enhance after-tax yield and significantly reduce the after-tax impact of the reduction in distributions.
For the remainder of 2010, we intend to maintain our current annualized distributions at $1.84 per unit ($0.1533 per unit monthly).
Unitholders will be asked to approve the proposed conversion plan at the Fund’s annual and special meeting scheduled for June 17, 2010. Implementation of the conversion is expected to occur by way of plan of arrangement and is subject to approval by not less than 66 2/3% of the votes cast at the unitholders’ meeting as well as customary conditions, including the receipt of applicable regulatory, court and TSX approvals. Upon completion of the conversion, unitholders will receive on a tax deferred roll over basis one share of the resulting public corporation for each unit held. An information circular in respect of the unitholders’ meeting, which will provide a detailed outline of the proposed conversion, is expected to be available by mid-May, 2010.
In connection with a review of the proposed conversion, the Board of Trustees of Davis + Henderson have retained financial, legal and taxation advisors.
About Davis + Henderson
Founded in 1875, Davis + Henderson provides innovative programs, technology products, and technology based business services to customers in the financial services industry who offer deposit, lending, insurance and wealth management products to consumers and businesses. Davis + Henderson Income Fund is listed on the Toronto Stock Exchange under the symbol DHF.UN. For more information, visit www.dhltd.com.
Caution Concerning Forward-looking Statements
This news release contains certain statements that constitute forward-looking information within the meaning of applicable securities laws (“forward-looking statements”). Statements concerning Davis + Henderson’s objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of Davis + Henderson are forward-looking statements. The words “believe”, “expect”, “anticipate”, “estimate”, “intend”, “may”, “will”, “would” and similar expressions and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to important assumptions, including the following specific assumptions: the ability of Davis + Henderson to meet its revenue and EBITDA targets; general industry and economic conditions; changes in Davis + Henderson’s relationship with its customers and suppliers; pricing pressures and other competitive factors. Davis + Henderson has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking statements. While Davis + Henderson considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Business, or developments in Davis + Henderson’s industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Risks related to forward-looking statements include, among other things, challenges presented by declines in the use of cheques by consumers; the Fund’s dependence on a limited number of large financial institution customers and dependence on their acceptance of new programs; strategic initiatives being undertaken to meet the Fund’s financial objective; stability and growth in the real estate and mortgage markets; as well as general market conditions, including economic and interest rate dynamics and investor interest in, and government regulations relating to, Income Trusts. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Forward-looking statements are based on management’s current plans, estimates, projections, beliefs and opinions, and Davis + Henderson does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change except as required by applicable securities laws.
<< ----------------------------- (1) Pro forma taxes have been estimated for 2009 on the assumption that the Business had been a corporation paying taxes at the applicable statutory Corporate tax rates. Taxes have been estimated using Adjusted income as a proxy for taxable income. A range has been provided to reflect the fact that certain decisions may impact the utilization of timing differences and tax losses that would change the amount of taxes actually paid. (2) Pro forma payout ratio is calculated by dividing the intended distribution of $1.20 per unit by Adjusted Income for 2009 after deducting taxes as described. Adjusted Income is a non-GAAP term defined as net income after removing the non-cash impacts of certain fair value and purchase accounting items and future tax recoveries or expenses. This term has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP. See the Fund's Financial Statements for a reconciliation of Adjusted income to net income. >>
SOURCE: Davis + Henderson Income Fund
Contacts: Robert Cronin, Chief Executive Officer, Davis + Henderson, Limited Partnership, Tel: (416) 696-7700; Brian Kyle, Chief Financial Officer, Davis + Henderson, Limited Partnership, Tel: (416) 696-7700, Website: www.dhltd.com