The reborn income trust market got a major endorsement yesterday from one of the nation's largest companies as Brookfield Asset Management opted to take a timberlands division public as a trust.
Brookfield, a $15-billion conglomerate that used to be called Brascan, announced late yesterday that it is spinning out part of its New Brunswick and Maine forest holdings as Acadian Timber Income Fund. Some of the forests are being vended by Brookfield-controlled Fraser Papers. The offering is being led by CIBC World Markets and is expected to see Brookfield raise $80-million.
This is the kind of quality initial public offering that everyone hoped would come to market after the federal government resolved the uncertainty around trusts late last month. And it's not an asset class that has traditionally made it into the retail investment market.
Brookfield has made owning forests an important part of its infrastructure investment strategy, with ventures that include this year's $1.2-billion purchase of B.C. coastal timberlands from Weyerhaeuser. Trees aren't found in many retail investor portfolios, but timber has been a fabulous alternative asset play for the institutional crowd for years. Over the past 15 years, timberlands have put up a stellar performance, with the sector's benchmark index up 16.1 per cent annually. Over the same period, commercial real estate posted 6.8-per-cent returns.
But as much as Brookfield wants to own forests, office buildings or power projects, it also wants liquidity in its portfolio. Chief executive officer Bruce Flatt has consistently said his company's approach is to take a fee for caring for these assets, while sharing ownership with outside investors. Until yesterday, it was only the pension fund and insurance types being invited into the timberland projects.
Acadian will test the water with an offering of just over one million acres of forest. The trees will continue to be cared for by a division called Brookfield Timberland, and the parent conglomerate will continue to hold between 27 and 32 per cent of the trust once the IPO is done. If the reception is good, it's possible that more timberland will be sold as trusts over time, rather than as a purely institutional product.
There were other signs of health in the income trust sector yesterday. Trading kicked off in Duke Energy Income Fund, a spinoff of the American parent's Canadian natural gas gathering and processing assets, and the units rallied smartly to $11.10 on the Toronto Stock Exchange, up from the IPO price of $10. An impressive 3.6 million units changed hands.
And private equity fund Oncap Investment, a smaller-cap version of parent Onex, was able to price the coming IPO of its Futuremed Healthcare Income Fund at the low end of the expected range.
Futuremed dominates the sales of everything from adult diapers to beds and chairs at long-term care facilities, a lack of glamour that plays well in the trust sector. Underwriters CIBC World Markets, BMO Nesbitt Burns and RBC Dominion Securities hoped to sell the $10 units with a yield between 9 and 10 per cent, and ended up pricing yesterday at 9.25 per cent. A number of IPOs done in recent months had to have their yields boosted from initial projections in order to attract investor interest.
Blackmont extends reach
Blackmont Capital expanded its investment banking reach yesterday by hiring Craig Kingas as its director of equity capital markets. He will come over in the new year from National Bank Financial, where he spent the past four years. The equity capital markets team is the link between investment banking and equity desks -- in other words, what investors are demanding and what corporate financiers are supplying. It's a critical role that also involves building relationships with other dealers.
RBC maintains hedge push
Four years ago, RBC Dominion Securities targeted the hedge fund world as an area that it wanted to cover well. That prescient push has made the dealer one of two or three central providers to the Street's best-paying clients, and now the dealer is reinforcing its commitment.
RBC Dominion hired Mark Hoogeveen this week from Scotia Capital, where he's worked for the past 12 years and built a strong hedge fund coverage team. He comes in as a managing director and senior salesman, with a focus on the hedge sector.
UBS welcomes energy analyst
UBS Securities has one of the largest energy trading teams in Calgary, after it picked off the Enron unit in the oil patch a few years back. But you've got to back up traders with analysts, and that's what UBS did this week. The firm, jointly owned by the Swiss bank and its Canadian employees, welcomed aboard Andrew Potter in Calgary. Mr. Potter was part of the energy analyst team at CIBC World Markets.
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