Round up the usual suspects. That memorable line from the final scene of Casablanca just as easily applies to the Dividend Watch List. Of the 11 distribution cuts we saw last month, eight were by repeat offenders, i.e. companies that had already cut payouts at least once since September.

That follows the pattern of this bear market. In fact, more often than not, when a trust or high-yielding corporation has cut its dividend once, it did so again.

That was particularly true of energy producers and service companies, which combined for 47 of the 77 cuts we’ve seen since the fall of Lehman Brothers in September. In fact, of the 31 dividend-paying sector trusts and corporations tracked in How They Rate, 16 cut their distributions more than once over that period.

As I’ve pointed out more than once, energy producers’ cash flows are determined by three things: how much oil and gas they produce; what it costs them to get it to market; and energy prices. The first two factors are to a large extent within management’s control. Trusts can limit the impact of volatile oil and gas prices with systematic hedging, and most do so regularly.

Ultimately, however, energy prices are outside management’s control. And sooner or later a dramatic slide, such was what we’ve seen since last summer, is going to bash cash flow.

When cash flow drops, management has three basic options. It can borrow money to cover the shortfall and hope energy prices rebound swiftly. It can slash capital expenditures and operating costs. Or it can reduce distributions.

One of the pleasant surprises of recent months is the way Canadian banks have continued to support energy producers as customers, renewing credit lines on favorable terms and even extending more money for development. One big reason for that good treatment, however, is the innate conservatism of Canadian producers themselves, i.e. their aversion to rolling up large debt balances.

Even weaklings like Enterra Energy Trust (TSX: ENT-U, NYSE: ENT) have been working diligently to reduce debt. And trust after trust has unveiled business plans under which even diminished cash flow covers both projected capital spending and distributions. Levering up to cover cash flow shortfalls just isn’t in the game plan.

Some trusts have been able to issue new equity. But with producers selling at such wide discounts to net asset value (NAV), this is an attractive option only for the most debt-heavy.

That leaves cutting capital spending and distributions as managements’ only true options–and there’s only so much drilling and exploration outlays can be reduced without threatening the long-term integrity of the business. The result is a wave of distribution cuts at energy producer trusts not seen since the late 1990s.

The key question on many investors’ minds now: What level of energy prices is reflected in the current level of distributions? Oil prices have struggled to hold above USD50 a barrel and seem to break down every time there’s gloomy economic news. But they are up nearly 50 percent from the lows reached in mid-December. And, judging from management statements, the industry seems to have adjusted its business plans to something in the neighborhood of USD40 to USD45.

On the other hand, natural gas prices are still in freefall, with near-term futures slipping to just USD3.60 per million British thermal units (MMBtu) in late March. The dramatic slide in industrial demand has more than offset the impact of a generally cold winter in the US, as well as almost unprecedented supply destruction as producers have pulled the plug on projects and cut the number of operating drilling rigs in half. Now, with inventories flush and shoulder season cutting residential demand, there’s little to support prices.

Oil gets the headlines. But for the overwhelming majority of trusts, natural gas is the more important commodity. And even the most conservative aren’t pricing USD3 gas into their calculations.

In my view, there’s simply no way gas prices can remain at levels this far below production and, particularly, development costs for very long. Moreover, the ongoing supply destruction means prices are likely to go higher than ever, once demand returns to a more normal level.

That, in effect, is what we’re playing for by holding this battered group. In the near-term, however, sector investors need to be prepared for more distribution cuts, which are arguably already reflected in share prices that are a fraction of the NAV of oil and gas in the ground.

Last month five producers and one services trust trimmed distributions. The most radical came at Advantage Energy Income Fund (TSX: AVN-U, NYSE: AAV), which completely eliminated its payout as part of a proposed early conversion to a corporation.

Following the move, I spoke with CEO Andy Mah about the rationale behind the trust’s move, and where it saw its prospects. Basically, Advantage is a mid-sized producer (natural gas accounts for 67 percent of output) sitting on a very big find at Glacier, Alberta in the Montney Shale area.

As reported in a March 13 Flash Alert, the company replaced 290 percent of its annual output of oil and gas with new reserves at the ridiculously low finding and development cost of just CAD3.48 per barrel of oil equivalent. Reserve assessment now puts Advantage’s working interest ownership at the Glacier property to the equivalent of 2.9 trillion cubic feet of proved plus probable natural gas reserves, according to independent rater Sproule. And there’s an inventory of 440 more drilling sites that could push those numbers higher still.

At a higher natural gas price, Advantage might have had the cash flows to make suitable progress at Glacier–which has an estimated development cost of CAD2.5 billion–and pay a distribution. At less than USD4 per MMBtu, however, its choices were basically to put Glacier on hold and try to pay a distribution, or else devote all cash flow to Glacier.

Only time will tell if Mr. Mah’s decision to eliminate distributions entirely and convert early to a corporation will pay off for Advantage’s long suffering investors. It’s possible an investor revolt may prevent him from getting the needed two-thirds support to put the plan into action. The company wants to get this done by June 30, so unitholders should receive proxy materials from brokers shortly.

Whether it’s organized as a trust or corporation, however, the key to Advantage’s success or failure remains natural gas prices. Not paying dividends will save nearly CAD200 million a year, based on what was paid out in 2008. Mr. Mah points out that even as a corporation, the company has enough tax pools to ensure it won’t be paying much, if anything, for some time. And the trust has hedged well over half its expected natural gas output for both 2009 and 2010, effectively locking in cash flow no matter how far prices may drop.

Even a modicum of stability in gas prices should ensure the money’s there for a faster development of Glacier. And strong gains in both output and reserves going forward will further lift NAV, which at CAD14.03 per share according to Sproule is already nearly five times the company’s current share price.

With very few exceptions, trusts converting early to corporations have seen their share prices suffer during the transition, as traditional income seekers exit en masse. That’s precisely what we’ve seen thus far for Advantage, which fell sharply following the conversion news.

On the other hand, following the initial selloff, converted trusts with strong businesses have invariably attracted support from a new group of investors more interested in growth than yield. That hasn’t yet happened with Advantage, in large part because of the continued weakness in natural gas prices. But with the shares’ huge discount to NAV and the intense interest in the Montney region, there’s a lot of room for big time upside, including from a possible takeover. In fact, it’s likely that when gas prices regain traction, Advantage will again trade at a double-digit level.

My problem is getting from here to there. From inception Canadian Edge has focused on yield, and there are plenty of trusts out there with great promise for growth that haven’t abandoned a dividend-paying model. Given the value it presents, I’m not going to recommend selling Advantage Energy Income Fund now. It is a hold, however, pending a better exit point.

For the remaining energy trusts cutting distributions last month, it was once again a matter of adjusting payouts to lower cash flows. The bad news is they’re now paying lower dividends. The good news is they’re maintaining sustainability under the toughest conditions, the primary criterion for being able to ride an energy recovery.

That certainly applies to Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF), reviewed in High Yield of the Month. It does to Bonavista Energy Trust (TSX: BNP-U, OTC: BNPUF) as well.

Bonavista had come in with solid fourth quarter results. Nonetheless, management cited lower natural gas prices in the first quarter as changing its calculus, cutting the payout 20 percent.

As noted in the Oil and Gas Reserve Life Table, Bonavista has a roughly balanced production mix, moderate finding, development and acquisition (FD&A) costs and decent reserve life. Debt is low and the distribution cut takes the payout ratio down to just 34 percent, though that figure is based on fourth quarter cash flows that are certain to be lower in the first quarter of 2009.

To be sure, a further whack against natural gas prices will come right out of cash flow, and realized fourth quarter prices are basically twice current levels. But Bonavista is demonstrating its ability to survive tough energy market conditions, which remains the fundamental criterion for sharing in the ultimate recovery. That appears to be the opinion of the market place, which has actually rewarded the shares with a higher price since the dividend cut. Bonavista Energy Trust remains a buy up to USD15 for patient energy investors.

NAL Oil & Gas (TSX: NAE-U, OTC: NOIGF) also features a well-diversified production mix and a rising production profile, with 156 percent of output replaced with new reserves in 2008. Last month, the trust announced yet another acquisition that should prove to be strongly accretive to output, reserves and cash flow, paying an estimated CAD115 million in shares and assumed debt for the assets of Alberta Clipper Energy (TSX: ACN, OTC: ABRCF).

From NAL shareholders’ perspective, financial risk from this deal has been literally halved, as NAL’s lead owner Manulife Financial (TSX: MFC, NYSE: MFC) has agreed to purchase a 50 percent direct interest in the new assets. Meanwhile, it boosts the trust’s production and reserves by 7 and 6 percent, respectively, and undeveloped acreage by 35 percent. That’s particularly important, given that these properties are entirely located in areas NAL management knows well.

Just being able to do a deal like this in an environment like this should provide a great deal of confidence to NAL unitholders, as far as the trust being able to keep weathering the market storms. More important, however, it’s wealth building that will pay off richly the next time energy prices rally.

That again should convince investors to hold on despite the 18 percent distribution cut last month in response to lower energy prices. Moreover, the payout ratio is 40 percent and the debt-to-cash flow ratio is 1.28 based on fourth quarter numbers. And current capital spending and distribution plans are based around the reasonable assumptions of USD45 per barrel oil and natural gas less than USD4 per MMBtu.

That provides more than a modicum of stability for the distribution. In such a volatile price environment, no one should discount the possibility for another cut. But NAL Oil & Gas is also a buy for patient energy investors up to USD10.

Finally, Penn West Energy Trust (TSX: PWT-U, NYSE: PWE) has apparently worn out its welcome with many investors after cutting its distribution by more than a third last month. Though insiders have bought shares the last two months, Bay Street and Wall Street analysts have changed their tune dramatically, shifting from five buys, four holds and two sells in early February to one buy, nine holds and two sells in early April.

At first glance it’s easy to see why many have lost confidence. The cut is the trust’s second thus far in 2009 and was accompanied by management statements that capital spending this year would be at “the low end” of prior projections of CAD600 million to CD850 million. In addition, despite management’s oft-professed intentions to slash its USD4 billion debt load, it last month announced yet another acquisition that will add CAD40 million in borrowings to its balance sheet.

On one of the popular investment blogs, a headline asks if management has “any credibility.” Some readers I’ve corresponded with wonder if management is gearing up to pull an Advantage Energy, i.e. announce an early conversion to a corporation and eliminate the distribution.

Still others question the timing of the dividend cut, particularly after oil prices had rallied above the USD45 level management had previously indicated was the basis for its payout. And CEO Bill Andrews actually stated in the fourth quarter conference call that the trust could “take a little more shock on the natural gas side” since gas production accounted for only about “25 percent of revenue.” That assertion was directly contradicted a couple weeks later in a press release announcing the distribution cut, which specifically listed the “challenging” outlook for natural gas prices as a reason for the reduction.

As CE readers know, I take the issue of trust between management and investors very seriously. Algonquin Power Income Fund’s (TSX: APF-U, OTC: AGQNF) backdoor dividend cut last year was the primary reason I unloaded it from the Portfolio.

Now that we have the benefit of Algonquin’s fourth quarter results showing an 11.5 percent drop in distributable cash flow. Consequently, it’s plain that the power trust’s management was facing some difficult decisions, though the underlying business is still solid. It’s going to be a while before Algonquin management regains its lost credibility. That’s almost certainly a big reason why the analyst community remains so radically split on the shares, with four buys and three sells. And it’s why I rate Algonquin Power Income Fund only a hold, even at a price of just 56 percent of book value.

In Penn West’s case, management could have done a much better job communicating with us over the past few months. For one thing, natural gas at 43 percent of total output is hardly a sideline business for the trust. Given the seriousness of the industry’s woes, it was inexcusable for CEO Andrews to downplay the risk falling gas prices posed to the distribution.

On the other hand, between the March 19 conference call and the day the dividend cut was announced, gas prices plunged 20 percent. That doesn’t excuse downplaying the importance of natural gas to the bottom line. But Penn West’s cut was hardly a unique response to the kind of severe pressures now hammering its industry.

Moreover, on one critical point, management has been wholly consistent: its desire to use its size and financial power to grow at a time of extreme industry weakness. To quote from the dividend cut press release, “Given this outlook and the level of current opportunities to make accretive, strategic acquisitions, Penn West believes it prudent to limit 2009 capital spending to the lower end of our guidance range and to adjust our distribution level.”

That may not be a strategy yield-focused investors want to see. But it’s one that makes a lot of sense in this environment for the sustainability and ultimate profitability of the enterprise. And it’s one management has consistently shown itself capable of executing in recent years, including the Reece Energy Exploration (TSX: RXR, OTC: REEXF) deal inked last month.

So what do we do about Penn West? In my view, two factors stand out. One, this is a substantial trust in no danger of going belly-up. Debt may look high, but it’s manageable in the context of the enterprise’s size at 27 percent of capital, and refinancing needs are modest until 2011. Moreover, the trust is adding assets in well-negotiated deals and putting its scale to work controlling costs.

To be sure, falling energy prices are hurting this year, and natural gas is a big part of that. And until energy rebounds, there’s little hope for either a cash flow rebound or higher distributions. But this enterprise is still building future value in a tough time.

Second, I’m no mind reader, and I certainly can’t guess what management will do with respect to 2011 trust taxation. I have no reason not to believe they won’t do as they say and remain a trust as long as possible before converting to a dividend-paying corporation. But it’s also entirely possible management will take a different, more radical path, as Advantage did, especially if energy prices weaken further.

What we do know is Penn West at its current price is deep value. Based on the conservative assumptions from Sproule, NAV of its reserves in the ground is CAD32.48 per share. That’s nearly three times the current price. That makes it an extreme bargain, no matter how management ultimately chooses to organize.

As with all of the energy trusts, it’s going to take patience to hang with Penn West until energy prices finally do turn the corner. And a 35 percent payout ratio based on fourth quarter 2008 cash flow notwithstanding, there’s absolutely no guarantee the distribution won’t have to be cut again. That’s why all of my energy trusts are in the Aggressive Portfolio. But for those who can handle that, there are few better candidates anywhere to double or even triple from here over the next couple years. Buy Penn West Energy Trust up to USD15 if you haven’t already.

With its energy producer clients suffering, it’s not hard to see why Essential Energy Services Trust’s (TSX: ESN-U, OTC: EEYUF) is cutting its distribution again, this time by 77.8 percent to a quarterly rate of a penny a share.

To be sure, Essential has made great strides over the past couple years improving the sustainability of its business. Long-term debt has been cut to just CAD20.4 million from over CAD57 million a year ago, as the trust has shed non-core assets, added others and kept a firm grip on costs. The Builders Energy Services Trust acquisition has been successfully absorbed, and the service line looks more solid than ever.

Unfortunately, even all of those achievements won’t come close to offsetting the dramatic decline in oil and gas drilling now unfolding in North America. On the plus side, Canada has already been taking its knocks, so Essential should be familiar with what needs to be done. But on the other hand, the Petroleum Services Association of Canada now projects a 46 percent decline in the number of wells drilled on a completion basis.

The worst is projected to fall in Alberta, where the company does the majority of its business. That’s due in part to the confusion left over from the 2007 attempt to increase the province’s share of royalties, despite the government’s rollback of much of the Our Fair Share initiative.

Given all that, it’s hard to see Essential making any headway this year, particularly since it competes with so many larger and stronger players. Despite the radical distribution cut and a share price now well under USD1, I continue to rate Essential Energy Services Trust a sell.

As far as dividend cuts go, Westshore Terminals Income Fund’s (TSX: WTE-U, WTSHF) 14.3 percent drop in its payout versus year-ago levels is hardly a blip on the radar screen. What’s a bit more worrisome is the coal terminals trust’s reliance on some shaky players in an industry that’s getting whacked by global economic weakness.

The problem isn’t with Westshore’s assets, access to credit, operational efficiency or management quality. Rather, it’s that cash flow depends on throughput, chiefly how much metallurgical coal its main customer Teck Cominco (TSX: TCK/B, NYSE: TCK) ships through its terminals. Management currently expects 2009 throughput to drop 14.7 percent overall from 2008 levels, but freely admits that projection may turn out to be wildly off.

Westshore’s distribution has historically been highly volatile. The upshot from these results is that it’s going to remain so in 2009. That means anyone who owns shares should expect volatility this year, both with the dividend and share price.

For those who can accept it, Westshore is a great play on Teck’s exports of metallurgical coal, a unique resource the latter took control of when it bought out investors in Fording Canadian Coal last year. That’s a business that thrived before the recession took hold and will do so again when conditions improve. Hold Westshore Terminals Income Fund.

Outside energy and natural resources, the bulk of distribution cuts have been due to exposure to the most economically sensitive areas of the economy, and/or high use of leverage. The former definitely applies to Contrans Income Fund (TSX: CSS-U, OTC: CSIUF), which last month “temporarily suspended” its entire payout due to “the Fund’s results to date in 2009 and the current business environment.” Contrans also notified investors that it intends to pay any future dividends on a quarterly basis rather than monthly.

Contrans’ core transportation business is of course one of the most sensitive to the level of economic growth. The company had been managing to keep things on an even keel thanks to a tight control on costs and a debt structure that limits refinancing needs until 2013. But with much of its sales dependent on Canadian companies exporting to the US, fallout from the recession here has at last become too much to bear. At least one of the company’s major customers has already filed Chapter 11 and more are likely to follow, since many of them come from construction and manufacturing.

Even with the drop in fourth quarter revenue, Contrans’ distributable cash flow after maintenance capital expenditures still covered dividends by a solid 1.15-to-1 margin, only slightly off the 1.32-to-1 cushion of a year ago. In that context, the suspension of the payout is all the more alarming. The good news is the shares have snapped back somewhat from the lows set the day of the dividend cut. But given the industry risks and lack of a dividend, my advice is to sell Contrans Income Fund.

For Home Equity Income Fund (TSX: HEQ-U, OTC: HEITF), the 61.1 percent dividend cut announced last month is part and parcel of a plan to convert early to a corporation and later a federally regulated bank. The Canadian government has stated it won’t rule on the bank application until the conversion is complete, which is now expected shortly after a special shareholders meeting on April 30. But the conversion should open up a full range of opportunities for the seller of reverse mortgages to grow. Management also plans to pay dividends quarterly rather than monthly.

At first glance Home Equity seems to be in decent financial shape. The reverse mortgage portfolio grew more than 15 percent in 2008, pacing a 10.8 boost in revenue. Fourth quarter revenue, however, was actually 3 percent lower than a year ago. Meanwhile, 2008 operating margin fell 3.4 percent, due in large part to higher carrying costs on the debt needed to support the mortgage portfolio.

The latter was offset to some extent by cost cutting in the fourth quarter. But it could become a much bigger problem in 2009-10, as some CAD260 million of debt must be refinanced. That’s an amount more than five times Home Equity’s current market capitalization and it likely explains why the trust elected to trim distributions despite reasonably strong dividend coverage last year.

Home Equity certainly has its fans, including presumably executives who made seven buys of shares last month. But mortgages have always been a tenuous business, heavily dependent on management’s acumen in navigating often volatile markets. Virtually every non-bank in this business has gone belly-up in the US, as have more than a few banks.

Canada never went for subprime. But a worsening recession could certainly mean credit problems for Home Equity, whether it reorganizes as a regulated bank or not. A sharp drop in property values, for example, could leave it on the hook just as owners of devalued homes are. That would cut into cash flow and leave the company stuck with a portfolio of unwanted properties. In any case, with a severely depleted yield, Home isn’t worth risking it. Sell Home Equity Income Trust.

Lanesborough REIT (TSX: LRT-U, OTC: LRTEF) in many ways reached critical mass last year, completing a major project in Fort McMurray, Alberta, the heart of the oil sands producing region. That asset boosted REIT-wide cash flow by 75 percent in 2008, pushing distributable cash flow above dividends by 14 percent for the first time.

In better economic times that would have been cause for increasing distributions substantially. But with Alberta commercial occupancy sliding, management went the opposite route, cutting the dividend by slightly more than half and going to a quarterly payout schedule from the current monthly regimen.

Looking at the fourth quarter numbers, Lanesborough certainly looks healthy. Despite the property buildout that boosted revenue by 44 percent, overall occupancy remained steady at 95 percent, while profit margins improved with scale. Mortgage loans as a percentage of appraised property values fell to 55 percent from 59 percent the prior year. And despite the combination of hefty financing needs and the credit crunch, the average interest rates on the REIT’s property mortgages held steady.

On the other hand, this is one REIT whose fortunes are clearly tied to Canada’s energy patch. As such, management is expecting “a reduction in cash from operating activities in 2009,” in large part due to “sudden weakness” in the Fort McMurray multi-family residential market.

Lanesborough’s properties have the competitive advantage of being new. And management’s plan to divest identified non-core properties to cut debt is also a plus. But make no mistake: Canada’s oil sands region has one of the most energy price-sensitive real estate markets on the planet, and this REIT is foremost a play on that region. True, it’s selling for 55 percent value after a long decline. But Lanesborough REIT is a hold for speculators only.

Last but not least on this month’s List is a closed-end mutual fund of trusts, Citadel Diversified Income Trust (TSX: CTD-U, OTC: CTDXF). As has been the case with other cutters, Citadel Diversified is making its move in response to the wave of distribution cuts among the individual trusts it holds in its portfolio.

Management has historically held a large number of energy producing trusts, the group with by far the greatest number of cuts owing to falling energy prices. In fact, four of its current top five holdings are energy producers, though the two largest positions–Crescent Point Energy Trust (TSX: CPG-U, OTC: CPGCF) and Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)–have yet to make reductions.

Citadel Diversified’s energy exposure means it’s likely to remain more volatile than other closed-end funds of Canadian income trusts and high-yielding securities. But also unlike many other funds, Citadel Diversified employs no leverage to pump up yields. And the now-reduced distribution rate was covered by 2008 investment income by a nearly 1.3-to-1 ratio, which should provide enough cushion against lower dividends this year. Throw in the share price’s monster discount of 20.6 percent to NAV and you have the makings of an upgrade. Buy Citadel Diversified Income Trust up to USD5.

Here’s the rest of the Dividend Watch List. See How They Rate for buy/hold/sell advice.

• Big Rock Brewery Income Trust (TSX: BR-U, OTC: BRBMF)
• Boralex Power Income Fund (TSX: BPT-U, OTC: BLXJF)
• Boston Pizza Royalties Income Fund (TSX: BPF-U, OTC: BPZZF)
• Canfor Pulp Income Fund (TSX: CFX-U, OTC: CFPUF)
• DiversiTrust Income Fund (TSX: DTF-U, DVTRF)
• EnerVest Energy & Oil Sands (TSX: EOS-U, OTC: EOSOF)
• Essential Energy Services Trust (TSX: ESN-U, OTC: EEYUF)
• FP Newspapers Income Fund (TSX: FP-U, OTC: FPNUF)
• Harvest Energy Trust (TSX: HTE, NYSE: HTE)
• InnVest REIT (TSX: INN-U, OTC: IVRVF)
• Jazz Air Income Fund (TSX: JAZ-U, OTC: JAARF)
• Labrador Iron Ore Royalty Income Fund (TSX: LIF-U, OTC: LBRYF)
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)
• Primaris REIT (TSX: PMZ-U, OTC: PMZFF)
• Primary Energy Recycling Income Fund (TSX: PRI-U, OTC: PYGYF)
• Select Diversified Income Trust (TSX: SDT-U, OTC: SSDUF)
• Swiss Water Decaf Coffee Fund (TSX: SWS-U, OTC: SWSSF)
• Westshore Terminals Income Fund (TSX: WTE-U, OTC: WTSHF)

Bay Street Beat

As of mid-March, Bloomberg has discontinued its weekly survey of Bay Street analyst opinion on S&P/Toronto Stock Exchange listings. The information provider still compiles analyst opinion on a company-by-company basis, but will no longer publish, for example, its “Biggest Weekly Changes” or “Highest/Lowest Average Analyst Rating” reports.

Cineplex Galaxy Income Fund (TSX: CGX, OTC: CGPXF) held onto its perfect 5.000 average rating in the final version of the highest/lowest survey. In late March, however, Onex Corp (TSX: OCX), which was instrumental in creating the fund, announced plans to sell 13 million units, about 23.5 percent of Cineplex Galaxy’s outstanding units. Onex is reducing its stake to about 2 percent via a bought-deal arrangement at CAD14.25 per unit. The transaction is expected to close on or about April 21.

Onex is likely executing a buy low/sell high exit from its Cineplex position. History demonstrates that the movie business benefits from consumers looking for cheaper entertainment options during economic downturns; in the last weekend of March, North American box office was up 40 percent compared to last year, boosted by decent product out of Hollywood. Cineplex has diversified its revenue stream to include more than ticket sales and concessions, though its sales of ad space in lobbies and on screens have slowed as businesses trim spending.

Cineplex earned a record CAD7.1 million during the fourth quarter of 2008 and reported a 16 percent increase in attendance during the period. Media revenue, however, slid 1.1 percent to CAD19.9 million because of fewer advertisers.

Among those S&P/TSX listings with the highest average rating increases for the final week of Bloomberg’s survey were How They Rate denizens North West Company Fund (TSX: NWF-U, OTC: NWTUF), Canadian REIT (TSX: REF-U, OTC: CRXIF), Cominar REIT (TSX: CUF-U, OTC: CMLEF) and TimberWest Forest (TSX: TWF-U, OTC: TWTUF).

Westshore Terminals Income Fund (TSX: WTE-U, OTC: WTSHF) and Canadian Oil Sands Trust (TSX: COS-U, OTC: COSWF) showed up with those companies suffering average rating decreases.

We’ll continue to track Bay Street opinion on trusts and high-yielding corporations included in the CE coverage universe in this space, though it will look a bit different.

Tune in May 8 for the new Bay Street Beat.

Quantitative Easing

Quantitative easing is a central banking policy tool used when the rate of interest falls so close to zero that further reductions are either impossible or are having no effect on stimulating the economy or preventing deflation.

The central bank is essentially creating money out of thin air to buy government securities, although it could conceivably be used to buy anything, such as government agency debt or mortgage-backed securities.

Last week, the US Federal Reserve, demonstrating that it would, in fact, “employ all available tools to promote the resumption of sustainable economic growth,” announced its intention to buy up toUSD300 billion in longer-term US Treasury notes as well as another USD750 billion of mortgage-backed securities with money it “adds” to its balance sheet.

The Bank of England, the Bank of Japan, and the Swiss National Bank had already launched their quantitative easing programs, and the Bank of Canada (BoC) is now likely to follow suit. The BoC must do so to prevent the loonie from rising to levels that would further devastate its manufacturers.

The BoC will officially join the quantitative easing crowd with its April Monetary Policy Report. The BoC said in early March, while announcing a 50 basis point cut in its target interest rate, that it would outline its framework on both quantitative and credit easing with its regular quarterly report.

The immediate aim of the BoC’s efforts is to narrow spreads on commercial mortgage backed (CMBS) and asset backed securities (ABS)–there are few buyers in the market right now for such securities, which have evolved to form a sort of “shadow” banking system that allows credit to flow more easily to individuals and businesses. Spreads on these securities remain very wide because there are few buyers in the current market, and that, in turn, means reduced access to credit.

BoC Governor Mark Carney, in London in early March for a meeting of G20 central bankers and finance ministers, hinted Canada too would fire up the press in the cause of growth.

“It’s important to do that in a comprehensive, holistic fashion so that people can see the range of tools that the bank continues to have,” Carney told reporters after the preparatory meeting in advance of an early April summit of G20 leaders. Many of the downside risks to the economy the BoC identified in its January Monetary Policy Report Update were materializing. “I would draw your attention to the commitment of central banks to maintain expansionary policies,” he said. “Rates will remain low for longer. In Canada … our overnight or target rate can be expected to remain at its current level of 50 basis points or lower until there are clear signs that the output gap is beginning to close.”

Officials at the G20 meeting underlined the significance of the joint central bank pledge, signaling that even traditionally conservative central banks had indicated they were prepared to take the leap into quantitative easing as they run out of room to cut interest rates. The Fed’s announcement is not likely to prompt a definite realignment in currencies, in part because other central banks are likely to follow its lead in quantitative easing. It’s not a global currency game-changer because other central banks, such as the BoC, are embracing quantitative easing.

Tax Statements

The Income Trust Tax Guide includes a table of links to Canadian trusts that have issued statements regarding the US tax status of their respective 2008 distributions. Such statements include whether the particular trust is a “qualified foreign corporation” paying “qualified dividends” within the meaning of the 2003 Tax Reconciliation and Relief Act (2003 Act). If a trust doesn’t appear or hasn’t been updated for 2008, it doesn’t mean its dividends are not qualified for US tax purposes. Check the particular trust’s website to see if it has issued a statement or refer to a statement from a prior year as backup for filing it as qualified dividends in the US.

“PFIC” indicates the income trust has specifically stated that it is a Passive Foreign Investment Company within the meaning of the 2003 Act and its dividends are not qualified. “NQ” indicates the trust has specifically stated that its distributions aren’t qualified.