Ample natural resources, a relatively stable financial system and a sustainable fiscal position: A report from Statistics Canada suggests the world has taken notice of Canada’s significant advantages here at the end of the Great Recession.

Global investors, showing a particular hunger for loonie-denominated assets amid a general return of risk appetite, have generated the strongest net inflows into Canada since 1993. Overall net foreign purchases of Canadian stocks minus Canadian purchases of foreign securities worked out to 3 percent of GDP, the highest it’s been since the days when the Toronto Blue Jays won World Series.

Foreigners bought a net CAD10.5 billion of Canadian securities in June, the sixth straight month of increasing investment. International investors bought a net CAD5.52 billion of bonds during the month, mostly five-year benchmark government bonds. Non-residents increased holdings of stocks by a net CAD2.33 billion, and bought a net CAD2.66 billion of money market paper.

Foreigners acquired a record total CAD38.28 billion of Canadian securities in the second quarter, bringing their total purchases of Canadian securities to CAD61.9 billion thus far in 2009, up from CAD38.8 billion at a comparable point in 2008.

This six-month surge corresponds with the global equities rally as well as a rising Canadian dollar. Is the strong loonie attracting investors, or is the loonie strong because of these new investors?

The relative strength in the loonie could be attracting foreign money in search of returns enhanced by a stable and rising currency. At the same time, the inflows have provided some support for the Canadian dollar. Investment inflows aren’t sufficient to move the loonie–the value of funds that change hands in the foreign exchange market dwarf these foreign-investment-flow figures–but it is evidence of real demand for Canada.

This is more than simply a speculative currency play. In reality this is a virtuous cycle nourished by Canada’s resource bounty, relatively strong fiscal position and the flexibility to provident prudent fiscal stimulus.

But net foreign investment continued to rise in June, even as the Canadian dollar pulled back. The CAD2.66 billion flowed into money market instruments perhaps reflects an effort to buy the loonie on a dip. The CAD5.52 billion spent in the corporate and government bond market suggests the currency wasn’t the only story. A surge of new issues–from a reviving private sector as well as from a government funding a stimulus plan–meant demand had to come from outside Canada’s borders. And foreigners responded.

That new bond issues found eager foreign buyers is further validation of the post-recession case for Canada. Its fiscal position, stable financial sector and commodity exposure make Canada an ideal way to play the recovery.

Hydro Duel

After a hearing Monday in Calgary, the Alberta Securities Commission (ASC) unanimously dismissed TransAlta Corp’s (TSX: TA, NYSE: TAC) effort to block Canadian Hydro Developers’s (TSX: KHD, OTC: CHDVF) shareholder rights plan.

As a result, the plan will be in effect Thursday, the expiration day for TransAlta’s CAD4.55 per share bid, and will continue through to Sept. 21, 2009.

In a statement posted to its website announcing the decision of the ASC, Canadian Hydro noted:

A number of interested parties have come forward and entered into confidentiality agreements in order to access the data room containing detailed information on the Company. Management has engaged in extensive discussions with several of these parties, including a leading international financial institution based in New York. This formed part of the evidence provided to the ASC in support of Canadian Hydro’s argument to dismiss TransAlta’s application.

The green power company, during a hearing before the ASC, said it expects the potential bidder to unveil a formal written proposal for all of Canadian Hydro’s shares later this week. Webster Macdonald, a lawyer from Blake, Cassels & Graydon LLP representing Canadian Hydro before the ASC, noted that the unnamed suitor has spoken in depth with Canadian Hydro’s lenders about restructuring the power company’s debt, a step that indicates a serious courtship.

It’s Still A Bird

CE Portfolio holding Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF) reported solid second quarter numbers that reflect the residual benefits of contracts negotiated in 2008, while margins were still high. Bird reported earnings per unit of CAD1.13, a 16 percent increase over year-ago numbers.

The task for Bird is to replenish its backlog in an environment much different from the one that set the stage for these results. The company announced two new deals recently that indicate a possible thaw in the private construction sector as well as the potential that Bird is extremely well-positioned to benefit from the rebound.

Bird has been awarded a contract for the construction of an industrial building for Potash Corp of Saskatchewan (TSX: POT, NYSE: POT). Work on the CAD90 million to CAD95 million project will begin immediately and is expected to be completed by the spring of 2011.

Bird is also part of a consortium that’s been identified as the “preferred proponent” to construct two schools totaling 170,000 square feet in New Brunswick.

The total value of the Potash Corp and New Brunswick projects is approximately CAD132 million.

Bird enjoys a reputation for disciplined bidding and effective cost management on fixed-price projects. It’s also come to be the top public-private partnership general contractor because of its Canada-wide presence and its solid balance sheet.

Speaking Engagements

Roger Conrad is making the trip to the Great White North for The World MoneyShow Toronto, October 20-22 at the Metro Toronto Convention Centre.

Roger will, of course, discuss Canadian income trusts and high-yielding corporations as well as the utility universe. Click here to register and attend as his guest.

The Roundup

Earnings season turned out about as well as it could have for the Canadian Edge Portfolio. Conservative as well as Aggressive holdings held up against the continuing stress of the worst global downturn since the 1930s. While many met or bet expectations on cost-cutting, a good number actually reported solid revenue and sales growth.

We’ll be looking at third quarter numbers for broader signs of a real turnaround in global economic activity. Here’s the regular compilation of all earnings summaries for CE Portfolio recommendations. We’ll be back to rounding up the entire How They Rate coverage universe next week.

Conservative Holdings

AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF) reported net income of CAD36.9 million (CAD0.47 per unit), compared to CAD32.9 million (CAD0.49 per unit) a year ago. This consistency further reveals the stabilizing affect of AltaGas diversified asset base as well as the benefits of competent risk management.

The trust issued CAD300 million of medium-term notes during the quarter, extending its debt maturity profile to match up with its long-term assets. Changes to its debt structure also leave AltaGas with considerable financial flexibility to pursue acquisitions.

Total net debt as of June 30, 2009 was CAD592.8 million, compared to CAD540.2 million at March 31, 2009 and CAD582 million at Dec. 31, 2008. The trust’s debt-to-total capitalization ratio as at June 30, 2009 was 36.1 percent, versus 33.6 percent at March 31, 2009 and 37.8 percent at the end of 2008.

Funds from operations (FFO) for the second quarter were CAD46.1 million (CAD0.58 per unit), down from CAD50.6 million (CAD0.75 per unit) a year ago.

Operating income from the gas business was flat at CAD24.6 million despite a challenging operating environment. In the power business, operating income was CAD19.6 million, down from CAD29.4 million a year ago on historically low spot prices, higher volumes sold at spot price and a reduced contribution from gas-fired peaking plants.

Net revenue for the quarter was CAD114.3 million compared to $117.3 million a year ago. In the gas business, net revenue decreased due to lower spot commodity prices, lower throughput in most finding, gathering and processing areas and lower operating cost recoveries. In the power business, net revenue decreased due to lower revenue from the sale of power at spot power prices which were partially offset by strong hedge prices and lower costs. The corporate segment reported higher net revenue due to unrealized gains and short-term investment income.

Management noted in its commentary accompanying the second quarter numbers that the trust will likely convert to a corporation in the second half of 2010. Crucially, management expects to pay a dividend between CAD1.10 and CAD1.40 per share on an annual basis; the trust currently pays CAD2.16 per unit per year. AltaGas Income Trust is a buy up to USD20.

Artis REIT (TSX: AX-U, OTC: ARESF), potentially vulnerable because of its exposure to the energy patch, reported a 3.4 percent increase in second quarter revenue to CAD35.5 million; year-to-date, revenue is up 7.7 percent to CAD71.9 million. Funds from operations (FFO) thus far in 2009 is up 3 percent to CAD27.4 million (CAD0.83 per unit) from CAD26.6 million (CAD0.82 per unit).

Net operating income (NOI) increased 2.2 percent to CAD24.3 million; year-to-date, NOI is up 5.5 percent to CAD49 million. Same property NOI, excluding non-cash revenue adjustments, was up 6.3 percent in the second quarter, while year-to-date same property NOI is up 6.7 percent.

As of June 30, 2009, debt-to-gross book value was 51.2 percent, down from 51.6 percent as of Dec. 31, 2008. The REIT’s second quarter interest coverage ratio was 2.27, down slightly from 2.26 a year ago.

At the end of the second quarter portfolio occupancy was 96.2 percent, up from 95.8 percent at the conclusion of the first quarter. As a REIT, Artis is immune to 2011 taxation. The payout ratio remains just 68 percent, and Artis REIT is still a buy up to USD10 for those who don’t already own it.

Atlantic Power Corp’s (TSX: ATP-U, OTC: ATPWF) numbers reflected the value of management’s ability and focus on eliminating as many uncontrollable influences on profits as possible.

The company saw cash flows fall at some projects and rise at others, but the bottom line was an overall second quarter payout ratio of just 68 percent and 71 percent for the first six months of 2009. Those are the lowest rates in company history and back management’s affirmation of its monthly distribution at least through 2015.

The company also announced a favorable rate settlement for its Path 15 power line in California, successful asset dispositions and additions and low-cost hedging of natural gas that will further lock in hefty cash flows going forward.

Atlantic Power will face no new taxes in 2011, as it’s already organized as a corporation. The shares have surged but still yield more than 12 percent. Buy Atlantic Power Corp up to USD10.

Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF) reported a 2.9 percent decline in revenues for the second quarter, but earnings before interest, taxation, depreciation and amortization (EBITDA) increased 1.9 percent year-over-year. Cost-cutting measures accounted for most of the gain.

Internet revenue grew 10.4 percent, while the number of high-speed Internet customers rose by 7.9 percent and residential high-speed Internet average revenue per customer increased by 6 percent.

IT revenue declined 16.6 percent; IT equipment sales were down CAD11 million from the same quarter a year ago but are up CAD10 million for the first half of 2009 compared to the same period in 2008.

Local service and long distance revenue declined 3.2 percent) and 5.8 percent, respectively, with network access services (NAS) 4.3 percent lower than a year ago. NAS declines in the second quarter of 2009 increased by approximately 11,000 from the same period a year earlier, driven largely by increased business NAS declines including government contract losses.
Revenue from other sources, such as outsourcing services, declined 8.1 percent from the same quarter in 2008.

Capital expenditures in the second quarter of 2009 were CAD122 million, 4.3 percent lower than a year ago.
Distributable cash increased 1.8 percent, as the cash benefits of higher EBITDA and lower capital spending more than offset the loss of distributable cash from discontinued operations.

Management noted that it continues to evaluate its options regarding the 2011 trust tax; Bell Aliant will convert on or before Jan. 1, 2011, but the company “will have sufficient tax shelter to defer incurring an income tax liability for at least 18 months and as much as 24 months after conversion to a corporation.” Bell Aliant Regional Communications Income Fund is a buy up to USD27.

Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF) reported solid second quarter numbers that reflect the residual benefits of contracts negotiated in 2008, while margins were still high. Bird reported earnings per unit of CAD1.13, a 16 percent increase over year-ago numbers.

The task for Bird is to replenish its backlog in an environment much different from the one that set the stage for these results.

Net income for the three months ended June 30, 2009 was CAD15.9 million, a 16.5 percent increase from CAD13.7 million a year ago, primarily on improved margins. Revenue was CAD228.7 million, an 18.9 percent decline from a year ago. The decrease reflects the decline in contract awards and project delays resulting from the economic downturn.

Costs and general and administrative expenses (including amortization) for the quarter were CAD209.1 million, or 92.3 percent of revenue; this compares to CAD264.7 million, or 94.4 percent of revenue, in the second quarter of 2008.

Bird won CAD184.2 million in new construction contracts and “put in place” CAD226.6 million of construction revenue during the second quarter. The fund’s backlog of CAD982.8 million on March 31, 2009 declined to CAD940.4 million on June 30.

The payout ratio sank to just 40 percent and, though Bird hasn’t articulated its 2011 plans, that’s a good sign the dividend could easily hold after taxes should management go that route. Bird Construction Income Fund is a buy up to USD30.

Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF) notched a 4.5 percent increase in FFO on higher average monthly rents and a still-strong occupancy rate. Second quarter FFO was CAD28.6 million (CAD0.43 per unit), up from CAD22.2 million (CAD0.34 per unit) a year ago.

Average monthly rent increased to CAD929 as of June 30, up from CAD919 last year. Occupancy was 97.5 percent. Management noted “continued strength in the rental residential sector in the majority of CAPREIT’s regional markets,” even though occupancy decreased from 98.2 percent a year ago.

Revenue rose 3.8 percent to CAD82 million on the combination of acquisitions and higher rents. NOI increased 4.6 percent, while same property NOI was up for the fourteenth straight quarter; NOI for properties owned at Dec. 31, 2007 increased 1.1 percent.

Distributable income was CAD23.5 million (CAD0.357 per unit), up from CAD22.6 million (CAD0.346 per unit) a year ago. The second quarter payout ratio was 78.4 percent, down from 80.5 percent.

The effective weighted average interest rate of CAP REIT’s total mortgage portfolio came down to 5.15 percent from 5.35 percent at the end of the second quarter of 2008; the weighted average term to maturity fell to 4.9 years compared to 5.1 years at the same time last year. Buy Canadian Apartment Properties REIT up to USD15.

CML Healthcare Income Fund’s (TSX: CLC-U, OTC: CMHIF) efforts to expand into the US paid off with expectations-beating second quarter numbers.

CML reported income of CAD25.9 million (CAD0.29 per unit), which was down slightly from CAD26.3 million (CAD0.29 per unit) a year ago. Revenue increased 12.9 percent to CAD133.9 million from CAD118.6 million in the second quarter of 2008; the increase is primarily the result of the acquisition of American Radiology Services, which contributed CAD7.7 million.

CML generated distributable cash of CAD24.3 million and distributed 98.6 percent of it. Management attributed the high payout ratio to the timing of working capital changes.

According to a statement accompanying its earnings announcement, “CML Healthcare will continue to evaluate its options for the post-2010 tax regime.” Management also noted, “At this time the fund does not see any compelling reasons to make changes to its structure prior to 2011.” CML Healthcare Income Fund is a buy up to USD13.

Colabor Income Fund (TSX: CLB-U, OTC: COLAF) reported a 1.8 percent increase in sales and a 5.8 percent increase in earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter. Net earnings rose 52.1 percent.

The company, which has been paying taxes at the corporate level since the January 2007 acquisition of Summit Food Service Distributors, distributed 68.7 percent of after-tax distributable cash to shareholders, down from 71 percent in the second quarter of 2008.

Organic sales growth in the wholesale segment was 4.4 percent; comparable sales in the distribution segment declined by 3 percent year-over-year, due mainly to weakness in the Summit division, which operates Ontario, a province hard hit by the economic downturn.

Colabor has already taken steps to deal with the downturn in Ontario as well as in Quebec, its two primary bases of operation, by freezing management salaries and cutting costs. However, the food distribution business is traditionally less affected than others by economic downturns, and management believes “that 2009 could generate interesting profit.” The company, with ample cash flow and access to credit, will continue to pursue opportunities to “increase its penetration of the food services market in Canada.”

Colabor Income Fund, which recently announced its conversion to a corporation while committing to maintaining its distribution, is a buy up to USD12.

Consumers’ Waterheater Income Fund (TSX: CWI-U, OTC: CSUWF) grew total revenues by 8.7 percent in the second quarter to CAD48.2 million, helped by the contribution of its Sub-metering business and increased revenue from its Rentals business, including an average rental rate increase on most of the portfolio of 3.9 percent effective January 2009.

The Sub-metering business had negative EBITDA of CAD600,000 in the second quarter, due in part to actions taken in response to the March 24, 2009 Ontario Energy Board Bulletin regarding the deployment of sub-metering services in the Ontario apartment market.

EBITDA declined slightly to CAD34.4 million from CAD36.7 million a year ago because of higher losses on disposals in the Rentals business. Excluding the impact of equipment sales, EBITDA was up slightly to CAD39.4 million from CAD39.3 million in the second quarter of 2008.

Cash from operating activities decreased to CAD34.1 million in the second quarter from CAD37.9 million a year ago.
Distributable cash decreased by CAD4.6 million in the second quarter to CAD13.7 million, due primarily to the higher interest expense after Consumers’ refinanced CAD330 million in debt and increased capital expenditures by CAD1.6 million.

The fund’s payout ratio during the second quarter of 2009 was 116.9 percent, up from 87.2 percent a year ago. The customer attrition rate was 1.6 percent, up from 0.7 percent a year ago on higher losses to competitors. Consumers’ Waterheater Income Fund is a hold.

Great Lakes Hydro Income Fund (TSX: GLH-U, OTC: GLHIF) reported second quarter revenue of CAD65.4 million and EBITDA of CAD33.5 million, year-over-year increases of 16 percent and 7 percent, respectively.

Generation for the second quarter was 1,271 gigawatt hours (GWh), up slightly from 1,260 GWh a year ago and consistent with a long-term average of 1,278 GWh. Generation from hydroelectricity was 1,149 GWh, down 9 percent compared to the exceptionally strong second quarter of 2008 but in line with a long-term average of 1,152 GWh. Hydroelectric generation in Quebec and New England remained strong, while Ontario and British Columbia were lower than long-term average due to less favorable hydrology.

Distributions to unitholders were CAD16.7 million (CAD0.31 per unit), consistent with the CAD15.1 million (CAD0.31 per unit) in the second quarter of 2008.

As at June 30, 2009, the fund had a strong liquidity position with cash and short-term investments, net of borrowing on its credit facilities, of CAD25.8 million, an increase of CAD21.4 million since the end of 2008. The fund has access to about CAD54 million of committed credit.

According to CEO Richard Legault, “The stable, long-term nature of (the fund’s) assets and contractual framework has largely insulated the fund from the ongoing economic challenges, while the major transaction and strategic repositioning that we recently announced will position the fund for continued success in the fast-growing renewable power sector.”

Great Lakes Hydro recently raised CAD185 million by selling more than 12 million subscription receipts, plus an additional CAD195 million through private placement sales to “certain institutional investors.” Proceeds will be used to buy 15 hydroelectric stations owned by Brookfield Renewable Power as well as a wind project currently under construction. Great Lakes Hydro Income Fund is a buy up to USD17.

Innergex Power Income Fund (TSX: IEF-U, OTC: INRGF) produced 247,764 megawatt hours (MWh) of power in the second quarter, a 1 percent increase over the same period in 2008 that translated into CAD16.5 million in gross operating revenue.

Overall, revenues increased 5 percent over the second quarter of 2008, on the increased generation as well as higher sales prices resulting from increased purchase rates as specified in long-term power purchase agreements.

For the three months ended June 30 Innergex generated CAD8.5 million in distributable cash, in line with the CAD8.3 million for the same period of 2008. The fund declared distributions of CAD7.4 million (CAD0.25 per unit), for a second quarter payout ratio of 87 percent, down slightly from 89 percent a year ago.

A continuing effort to diversify the fund’s facilities has had a stabilizing effect on operating results and distributable cash. Innergex Power Income Fund is a buy up to USD12.

Just Energy Income Fund (TSX: JE-U, OTC: JUSTF) reported an 8 percent year-over-year increase in sales, which reached USD432.6 million in its fiscal first quarter, and a 25 percent increase in gross margin. Distributable cash increased 36 percent.

Net customer additions for the quarter were 11,000, while margin per customer surged 14 percent on rising Green Energy Option (GEO) sales. In the last 12 months, 39 percent of all customers took GEO and on average elected to consume 71 percent of GEO supply.

The percentage of Just Energy customers choosing GEO is increasing steadily, which will drive margin growth; according to managements, “a new Ontario electricity customer taking 100 percent ‘brown’ electricity generates an annual $121 in margin. The same customer taking 100 percent GEO would generate margins of approximately $200 per year.”

On July 1 Just Energy completed the acquisition of Toronto-based Universal

Energy Group, a former competitor that will add more than 500,000 customers to Just Energy’s rolls. The deal should allow Just Energy to continue its impressive growth; management is holding off on revising its full-year distributable cash guidance (currently 5 to 10 percent) until the integration is complete.

Overall results were certainly impressive, given that the first is seasonally Just Energy’s weakest quarter. In fact, the payout ratio came in below 100 percent for the first time in the history of the fund. Just Energy Income Fund is a buy up to USD12.

Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF) reported strong results from all three of its business lines.

Additional plant ownership and solid throughput volumes enabled the Gathering and Processing segment to deliver contribution of CAD31.7 million, up 10 percent from a year ago despite lower drilling activity. Contribution from the NGL Infrastructure segment was CAD15 million, 32 percent higher than the second quarter of 2008 on strong demand for storage and fractionation services. The Marketing segment contributed CAD8.4 million, down from an exceptionally strong CAD18.6 million in the second quarter of 2008.

Distributable cash flow was CAD53 million (CAD0.84 per unit), slightly lower than the record CAD56.6 million (CAD0.92 per unit) of a year ago. Distributions to unitholders totaled CAD28.4 million (CAD0.45 per unit), a payout ratio of 54 percent. Net income was CAD21.1 million (CAD0.33 per unit), down slightly from CAD22.7 million (CAD0.37 per unit) in the same period in 2008.

Keyera currently expects to convert to a dividend paying corporation in January 2011. According to management, upon conversion “Keyera is positioned to maintain current distribution levels.” Keyera Facilities Income Fund is a buy up to USD20.

Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF) reported lower power production in the second quarter because of maintenance outages and reduced water flows, but stable occupancy, increased government funding and rising rates for premium rooms kept Leisureworld Senior Care LP’s performance in line with year-ago results.

Revenue for the quarter was CAD32.6 million, compared with CAD34.9 million in the second quarter of 2008. Distributable cash was CAD10.2 million (CAD0.205 per unit), down slightly from CAD11.2 million (CAD0.224 per unit) a year ago. Declared distributions were CAD13.1 million (CAD0.262 per unit), a payout ratio of 128 percent, up from 117 percent a year ago.

Total power production was 458,511 MWh was down 6.6 percent from the second quarter of 2008. Cardinal produced 264,729 MWh, down from 285,727 due to 307 hours of outage. Erie Shores produced 55,487 MWh, up from 53,976 a year ago, reflecting higher average wind speeds. The fund’s hydro power facilities produced 55,004 MWh, down from 59,411 MWh on lower-than-expected water flows. Whitecourt produced 34,372 MWh of electricity, down from 38,941 on 731 hours of outage. The fund’s indirect 45 percent equity interest in Leisureworld buoyed results, as the senior care facility generated a 6.7 percent revenue increase.

The fund signed a new credit agreement during the quarter that eliminates refinancing needs until 2012 while preserving its ability to make acquisitions. The fund reported a debt-to-capital ratio of 45.1 percent as of June 30. Macquarie Power & Infrastructure Income Fund is a buy up to USD8.

Northern Property REIT’s (TSX: NPR-U, OTC: NPRUF) net income per unit increased to CAD0.268 from CAD0.228 a year ago, while distributable income per unit was CAD0.56, up from CAD0.518.

FFO per unit was CAD0.569, compared to CAD0.526 for the second quarter of 2008. Same-door net operating income (NOI) was down 1.2 percent, reversing same-door NOI growth of 1.8 percent a year ago. Northern Property’s payout ratio based on FFO was 65 percent, down from 70.3 percent a year ago.

Rising vacancies in northern Alberta and British Columbia were a drag on results, but reduced fuel oil consumption and lower fuel oil prices compared to 2008 offset the impact of a slow economy. Acquisitions completed in 2008 and early in 2009 also contributed positively as the REIT basically maintained consistent year-over-year performance despite Canada’s recession.

The weighted average cost of mortgage debt decreased to 4.95 percent as of June 30 from 5.13 percent as of Dec. 31, 2008 and 5.02 percent as of March 31, 2009. Northern Property REIT is a buy up to USD20.

Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF) reported year-over-year revenue growth of 2.2 percent on a 23.3 percent rise in throughput; the company generated net earnings of CAD36.2 million during the quarter and CAD64.5 million year-to-date, compared to CAD42.1 million and CAD74.7 million over the comparable periods of 2008.

Excluding the after-tax gain on an asset sale of CAD14.7 million included in the six months ended June 30, 2008, net earnings increased 7.5 percent during the six months ended June 30, 2009. Pembina continues to generate steady and rising cash flows from its portfolio of conventional oil and gas pipelines and oil sands infrastructure throughout this downturn.

Pembina’s Conventional Pipelines business unit contributed CAD38.5 million in net operating income during the second quarter, up from CAD37.7 million a year ago. The Oil Sands & Heavy Oil Infrastructure unit generated CAD20.9 million, up from CAD8.9 million during the same period of 2008. Midstream & Marketing contributed CAD23.1 million to net, down a bit from CAD25.4 million a year ago.

Management expects to convert the trust to a corporation in 2011, but sees no impact on the current distribution at least through 2013. And as long as it continues to add new assets to its portfolio profitably, it should have no problems well beyond that as well. Pembina Pipeline Income Fund is a buy up to USD16.

RioCan REIT (TSX: REI-U, OTC: RIOCF) reported net earnings for the three months ended June 30, 2009 of CAD27.2 million (CAD0.12 per unit) compared to CAD44.8 million (CAD0.21 per unit) for the same period in 2008. Funds from operations (FFO) for the quarter was CAD67.9 million (CAD0.30 per unit) compared to CAD86.9 million (CAD0.40 per unit) a year ago. Excluding gains from properties held for resale, the decrease in FFO would be CAD1.6 million.

Decreases in FFO were offset by net operating income (NOI) from rental properties increasing by CAD7.1 million from a year ago. Same property NOI increased by 1.5 percent year-over-year.

As at June 30, 2009, RioCan’s indebtedness was 55.8 percent of aggregate assets; the REIT could incur additional indebtedness of approximately CAD664 million and still not exceed the 60 percent leverage limit set out in its declaration of trust.

The portfolio occupancy rate as at June 30, 2009 was 97.1 percent compared to 96.9 percent as at Dec. 31, 2008 and 97 percent as at June 30, 2008.

Approximately 714,000 square feet were renewed during the second quarter of 2009 at an average rent increase of approximately 7 percent, including anchor tenants, and approximately 9 percent, excluding fixed-rent options, compared to an average rent increase of approximately 4 percent, including anchor tenants, and approximately 5 percent, excluding fixed rent options, in the first quarter of 2009.

Rock-solid RioCan REIT remains a buy up to USD16.

TransForce (TSX: TFI, OTC: TFIFF) reported second quarter revenue of CAD454.2 million, down 24 percent from CAD595.6 a year ago on weak demand across all four business segments. Revenue excluding fuel surcharges was down 17 percent to CAD424.8 million. EBITDA was CAD59.8 million in the quarter, down from CAD66.9 million in the second quarter of 2008.

Net income for the period was CAD17.9 million (CAD0.21 per share), down from CAD19.3 million (CAD0.22 per share) a year ago.

“While volumes have declined, the company has largely sustained its EBITDA margin by maintaining our focus on cost savings and efficiency,” TransForce said in a statement accompanying the earnings release.

In the first half of the year TransForce lowered its debt level by more than CAD50 million; management reiterated a commitment to reducing debt by CAD100 million during 2009.

In a conference call to discuss the results, CEO Alain Bedard noted that volume in TransForce’s less-than-truckload segment “is down in the double-digits.” Although he characterized this as a “short-term event,” Bedard said he wasn’t sure when the company would start to see a pick-up in volume, though he is “cautiously optimistic that a bottom may have been reached.”

Efforts to preserve operating income focused on cost-cutting; TransForce shaved 26 percent off its operating expenses and 16 percent off its fixed and administrative costs year-over-year. A hiring freeze enacted in the first quarter will continue. TransForce is a buy up to USD8.

Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF) reported distributable cash flow per share came of CAD0.35, down from CAD0.36 a year earlier. Not counting restructuring costs, income from operations was up slightly (2.7 percent), while consolidated adjusted revenue slid 2 percent.

Online revenue continued to grow robustly by 22.5 percent, reaching 17.9 percent of the total sales in the quarter and illustrating the continued success of management migrating the business to the Internet.

Overall cash flow from the core directory business rose 3 percent, excluding one-time items, largely on cost savings though margins slipped slightly to 58.9 percent of revenue. Consolidation initiatives are expected to improve that in the second half of the year.

As was the case in the first quarter, it was the vertical media operation that presented Yellow with its greatest challenges. The slump in auto and real estate advertising carried down revenue by 26.6 percent, or 22.4 percent factoring out the sale of US operations. Cash flow margin fell to 32.1 percent from 35.8 percent a year earlier as cash flow fell 34.3 percent. Yellow Pages Income Fund remains a hold.

Aggressive Holdings

Ag Growth International (TSX: AFN, OTC: AGGZF) reported second-quarter net earnings of CAD16.4 million (CAD1.28 per share), up from CAD7.5 million (CAD0.58 per share) a year ago. Sales rose 19 percent to CAD66.8 million from CAD55.9 million.

Demand for portable grain handling and aeration equipment remains strong, and Ag Growth also enjoyed the benefits of price increases announced in 2008.

Gross margin as a percentage of sales for the three months ended June 30 was 42.5 percent, up from 34.3 percent. This reflects price increases as well as lower input costs across most product lines in 2009.

Selling, general and administrative expenses were CAD8.4 million, or 12.6 percent of sales, up from 12.1 percent on currency exchange factors and the establishment of international sales teams.

Ag Growth converted from an income trust to a taxable corporation on June 3, 2009. As of June 3 Ag Growth had future tax assets of approximately CAD69.8 million available to offset Canadian taxable income. For the period ended June 30 the company reduced its Canadian tax liability to zero through the use of CAD3.7 million of its future tax assets. Ag Growth International is a buy up to USD30.

ARC Energy Trust (TSX: AET-U, OTC: AETUF) reported that production for the quarter was ahead of budget at 63,969 barrels of oil equivalent per day (boe/d), despite the fact that the trust completed 37 facility turnarounds during the period. Higher production was the result of better-than-anticipated results from horizontal development wells that were drilled during the winter.

Cash flow from operating activities was CAD104.3 million (CAD0.44 per unit), a 62 percent decline from CAD273.4 million (CAD1.27 per unit) a year ago that reflects a 54 percent decrease in commodity prices.

Net income of CAD66.1 million (CAD0.28 per unit) is comparable to last year’s CAD57.3 million (CAD0.27 per unit); this year’s decline in commodity revenue was offset by a CAD39.7 million non-cash foreign exchange gain on trust’s US denominated debt and a decrease in non-cash losses on the trust’s risk management contracts.

In response to the decreased cash flow levels, ARC reduced its monthly distribution to CAD0.10 per unit, or 72 percent of cash flow from operating activities; the distribution reduction left sufficient cash flow to fund 55 percent of trust’s second quarter capital program. 

At June 30, 2009 ARC had approximately CAD650 million of unused credit available and a net debt-to-annualized cash flow from operating activities of 1.6 times. As of its second quarter earnings announcement, ARC plans to convert to a dividend-paying corporation effective Dec. 31, 2010. Management is still in the planning stages of the process. ARC Energy Trust is a buy up to USD17.

Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF) reported cash flow from operating activities for the second quarter of CAD6.8 million, down from CAD33.7 million a year ago. Distributable cash after maintenance capital expenditures for the period was CAD11 million (CAD0.36 per unit), down from CAD24.1 million (CAD0.72 per unit) a year ago. Revenue was CAD124.6 million in the period, down from CAD274.3 million, and EBITDA was CAD17.5 million, down from CAD30.3 million. Net earnings for the second quarter were CAD13.6 million, compared with CAD13.8 million in the same period in 2008.

Chemtrade experienced much weaker demand for its sulphur and sulphur products domestically as well as internationally as the global recession took its toll. Sulphur Products & Performance Chemicals generated revenue of CAD77.9 million, down from CAD127 million, and EBITDA of CAD15.2 million, down from CAD23.9 million in the second quarter of 2008. The division reported lower sales and margins for the period.

Pulp Chemicals reported second quarter revenue of CAD13.2 million compared with CAD14.4 million in 2008, reflecting reduced demand for sodium chlorate. The negative impact of the lower volume was partially offset by lower costs. EBITDA was CAD4.7 million, down from CAD5 million in 2008.

Much weaker demand from abroad reduced the International segment’s revenue to CAD33.5 million from CAD132.9 million a year ago. EBITDA for the quarter was CAD4.9 million compared with CAD8.8 million in the second quarter of 2008. Chemtrade Logistics Income Fund is a buy up to USD8.

Daylight Resources Trust (TSX: DAY-U, OTC: DAYYF) reported record production volumes of 23,047 boe/d on year-over-year production growth of 11 percent. FFO increased to CAD48.5 million for the second quarter from CAD44.9 million in the first quarter due to higher production volumes and increases in oil and natural gas liquids (NGL) prices. Operating netback increased to CAD27.84 per barrel of oil equivalent (boe), up from a first quarter figure of CAD27.43. Operating expenses improved slightly to CAD11.86 per boe from CAD11.91. The second quarter payout ratio was 54 percent.

Aggressive and successful hedging also boosted the bottom line, as Daylight realized a gain of CAD30 million on derivative contracts in the second quarter, compared to a realized gain of CAD25.3 million in the first three months of 2009.

The trust reduced bank debt to approximately CAD160 million; it has approximately CAD190 million available on its bank credit facility, which should provide enough room to make acquisitions. As of June 30, Daylight had a net debt-to-annualized cash flow ratio of 1.1-to-1. Daylight was also able to raise CAD172 million through a public offering of new trust units.

As of June 30, Daylight and its subsidiaries had tax pools of approximately CAD1.1 billion, which gives it significant ability to shelter cash flow from income taxes now and well beyond 2011. The trust has current “safe harbor” capacity to issue approximately CAD800 million of new equity. Daylight Resources Trust is a buy up to USD11.

Enerplus Resources’ (TSX: ERF-U, NYSE: ERF) second quarter operating results were in line with management expectations. Production averaged 94,501 boe/d, operating costs were CAD9.93 per boe, and general and administrative costs were CAD2.49 per boe.

Cash flow was CAD210.6 million for the quarter, a 42 percent decrease from CAD364.5 million a year ago. The fund reported a net loss of CAD3.6 million, reversing net income of CAD112.2 million in the second quarter of 2008.

Crude oil and natural gas revenues were marginally higher quarter-over-quarter, though the impact of increased oil prices was generally offset by lower natural gas prices and a slight decrease in production. Crude oil and natural gas revenues were CAD306.2 million, down from CAD734.4 million in 2008. The majority of the decrease in revenues in 2009 was due to the significant decline in commodity prices.

Enerplus’ payout ratio was 43 percent, reflecting a reduced distribution and decreased capital spending.

Enerplus also closed a CAD338.7 million senior unsecured note offering during the quarter, the proceeds of which were used to pay down bank debt. The fund has approximately CAD1.3 billion of available credit on its bank facility and a debt-to-trailing 12-month cash flow ratio of 0.7 times; it has ample room to pursue acquisition opportunities.

Enerplus continues to “develop plans for the conversion to a corporation by late 2010.” Management noted in its second quarter earnings report, “The conversion to a corporation would be a change to our legal structure only and not a change to our fundamental business model of being a distribution-oriented entity in the oil and gas industry.” Enerplus Resources is a buy up to USD25.

Newalta’s (TSX: NAL, OTC: NWLTF) second quarter numbers were boosted by improving demand and rising commodity prices that started late in the first quarter and continued in the three months ended June 30.

In fact, the second quarter of 2009 marked the first time that any year’s second quarter performance exceeded that of the first quarter; this illustrates the extreme conditions prevailing in the first quarter as well as the beneficial impact of management efforts to maintain profitability. After adjusting for the impact of commodity prices, financial performance in the second quarter was equivalent to the year-ago period.

Revenue declined 22 percent and net income was off 102 percent on a steep year-over-year drop in commodity prices, but the company realized CAD8 million in cost savings during the period.

Revenue for the Western segment declined by 33 percent and net margin contracted by 39 percent due primarily to the 47 percent decline in crude oil prices as well as weak North American drilling activity. The Eastern division recorded a 6 percent year-over-year revenue decline and a 23 percent net margin decrease, largely due to a 49 percent decline in lead pricing. Selling, general and administrative costs across the regions were reduced by 19 percent compared to last year.

As of June 30 senior long-term debt was CAD258.7 million, down nearly CAD5 million from Dec. 31, 2008. Newalta is a buy up to USD5.

Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF) reported oil and natural gas revenue of CAD137.1 million in the second quarter, down from CAD154.3 million a year ago on a 12 percent reduction in natural gas production. However, despite a 64 percent decrease in spot prices from year to year, Paramount’s realized natural gas price actually increased from CAD9 per thousand cubic feet equivalent (Mcfe) to CAD9.10.

Average production was 165.5 million cubic feet equivalent per day (MMcfe/d), down from 188.4 MMcfe/d reported in the second quarter of 2008. Total operating costs decreased 12 percent to CAD25.2 million from CAD28.6 million a year ago. Transportation costs decreased to CAD3.2 million from CAD3.7 million.

FFO increased to CAD91.2 million (CAD0.81 per unit) from CAD81.4 million (CAD0.73 per unit) for the second quarter of 2008, a result of realized gains on hedging contracts totaling CAD75.2 million. Distributions totaled CAD17.2 million (CAD0.15 per unit), a payout ratio of 18.9 percent of funds flow, down from 41 percent a year ago.

The outstanding balance on Paramount’s credit facility was CAD265.4 million as of June 30, down from CAD290.2 million at March 31. Debt repayment was funded by strong funds flow resulting from realized gains on hedges. Paramount now has net bank debt of CAD318.5 million on a combined borrowing base of CAD422 million. The trust’s credit facilities are subject to lender review prior to Oct. 31, 2009. Paramount Energy Trust is a buy up to USD5.

Penn West Energy Trust (TSX: PWT-U, NYSE: PWE) reported second quarter funds flow of CAD430 million (CAD1.05 per unit) in the second quarter, a 43 percent decline from 2008. The trust distributed CAD219 million to unitholders for a 51 percent payout ratio, consistent with year-ago levels.

Penn West reported a net loss of CAD41 million (CAD0.10 per unit) compared to net loss of CAD323 million (CAD0.86 per unit) in the second quarter of 2008.

Second quarter production averaged 180,601 barrels of oil equivalent per day (boe/d); 58 percent of this production was oil and natural gas liquids, 42 percent was natural gas.

Operating netback was CAD25.64 per barrel of oil equivalent in the second quarter of 2009, down 46 percent from a year ago because of lower commodity prices. Penn West had capital expenditures of CAD140 million in the quarter, including the drilling of 12 wells with a 100 percent success rate. Penn West Energy Trust is a buy up to USD15.

Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF) reduced second quarter interest expense per barrel of oil equivalent produced by 30 percent from year-earlier levels. That didn’t prevent cash flow from sliding in the face of sinking natural gas prices (84 percent of output). But coupled with proven reserve life of 17 years and the industry’s lowest production costs by far, it points to a company able to withstand the crisis in the energy patch far better than almost any rival.

The payout ratio has risen to 86 percent, a level that indicates some risk from a further drop in gas prices as well as 2011 taxation, which management has thus far not addressed definitively.

Peyto, however, continues to trade at a fraction of the value of its assets in the ground and that’s the bottom line on value for any energy trust. Peyto Energy Trust is a buy up to USD12.

Provident Energy Trust’s (TSX: PVE-U, NYSE: PVX) funds flow fell 71 percent to CAD49 million on the drop in commodity prices. The trust paid out 97 percent to unitholders, up from 55 percent.

Provident reported a net loss for the quarter of CAD80.1 million (CAD0.31 per unit), narrower than the CAD184.1 million (CAD0.72 per unit) realized in the second quarter of 2008.

Revenue for the second quarter was CAD305.9 million, down from CAD420.2 million a year ago. Upstream revenue was CAD78.9 million, down from CAD164.4 million. Midstream generated CAD314.5 million, down from CAD662.3 million.

Upstream cut its full-year production guidance to a range of 23,000 barrels a day to 24,000 barrels a day, from a previous forecast of as much as 25,000 barrels a day, citing unplanned downtime related to weather and third-party gas pipeline outages. Midstream contributed almost three-quarters of second quarter 2009 income, delivering much-needed cash flow as the production arm continued to be hurt by low oil and gas prices.

Along with its earnings numbers, Provident also announced the results of its “strategic review” and its intention to remain a “cash distributing energy enterprise.” Provident Energy Trust is a buy up to USD6.

Trinidad Drilling (TSX: TDG, OTC: TDGCF) posted a second quarter loss of CAD8.6 million (CAD0.09 per share), compared with a profit of CAD1.1 million (CAD0.01 per share) a year ago. Revenue fell by 11.1 percent to CAD125.5 million. Trinidad was able to preserve gross margins by realigning its cost structure and reducing debt.

The bottom line was hurt by lower utilization rates and lower day-rates. Utilization rates fell 54.8 percent to 14 percent in Canada, about 30 percent to 61 percent in the US. Trinidad’s high number of rigs under contract, its deeper capacity fleet and its focus on cost controls allowed it to record a gross margin percentage of 42 percent, up from 38 percent a year ago.

Cash flow from operations before changes in non-cash working capital was CAD25.6 million (CAD0.27 per share), down 5.8 percent from a year ago. The impact of reduced revenue was mitigated by improved cost controls. Trinidad also posted a foreign exchange loss of CAD9.5 million and a loss on disposal of assets of CAD5.6 million.

In its conference call to discuss the numbers, management said it doesn’t expect a meaningful recovery in drilling activity in Canada until the first quarter of 2010. Trinidad Drilling is a buy up to USD5.

Vermilion Energy Trust (TSX: VET-U, OTC: VETMF) recorded production of 32,238 boe/d in the second quarter of 2009, slightly lower than the 32,951 boe/d recorded in the first quarter of 2009. Increases in Canada and France were offset by lower volumes in the Netherlands and Australia. The trust generated FFO of CAD85.5 million (CAD1.10 per unit), up from CAD68.4 million (CAD0.88 per unit) in the first quarter, reflecting improved oil prices, partially offset by further weakness in natural gas prices.

Second quarter 2009 FFO was off considerably from the CAD190.3 million of a year ago; this year-over-year decrease is the result of significantly lower commodity prices. During the three months ended June 30, crude averaged USD59.62 per barrel, less than half of the average price for the same period in 2008. Natural gas clocked a second quarter 2009 average of CAD3.45 per Mcfe, about a third of 2008 levels.

Despite the year-over-year decrease FFO, Vermilion continued to maintain a strong balance sheet. As of June 30 Vermilion’s net debt represented less than 70 percent of its second quarter annualized FFO.

In the second quarter, total net distributions, capital expenditures, reclamation fund contributions and asset retirement costs incurred as a percentage of FFO was 83 percent, up from 34 percent a year ago. The year-over-year increase is a function of the lower second quarter FFO figure versus the same period in 2008.

Verenex (TSX: VNX, OTC: VRNXF), of which Vermilion is a 42.4 percent owner, continues to seek consent from the Libyan National Oil Corp (NOC) for the proposed sale of the company to CNPCI. The chairman of the NOC has stated repeatedly that the NOC intends to exercise a pre-emptive right and purchase Verenex, but this proposal remains under review by Libya’s General People’s Committee (GPC). Verenex has extended the outside date for the CNPCI offer to Aug. 24, 2009, drafted an arbitration claim as a contingency and suspended drilling in Libya to conserve cash.

Management currently expects to convert to a corporation by the end of 2010.