Contrans boss trusts business model

TORONTO — There are no plans on trailing TransForce down equity road, says Contrans President Stan Dunford.

TransForce may have successfully completed its transformation from an income trust to a corporation — and other companies may soon do the same — but Dunford insists that his unit holders aren’t demanding he follow suit.

In 2006 new legislation was introduced by Ottawa that would tax trusts like traditional corporations, making it increasingly difficult, some income funds claim, to meet expected growth targets given the higher cost of capital.

At that time, Dunford was openly concerned that the tax amendments would financially hurt companies like Contrans, which was the very first publicly traded equity corporation in Canada to change into an income fund.

The unforeseen changes robbed income trusts of their ability to purchase companies through the issuance of equity by as much as 30 to 40 percent and also yield their distributions, he said then.

But a year-and-a-half later, Dunford is clearly more confident in staying on the present course.

"The majority of people out there, without knowing any better, seem to think all the income trusts are going to convert to equities or be taken private and no one is going to remain. Well, that’s not true," he tells Today’s Trucking in an interview. "If we were the only one left and Trimac and Mullen converted… it still wouldn’t make any difference."

Confident Contrans: Stan Dunford says he’s
staying the income fund course.

The outspoken Dunford says at least one financial institution looking to broker a conversion recently rung him up, assuming "we’d be following the troops."

But Dunford says he sees no reason to do so because his unit holders (of which he’s the largest) are comfortable with the fact his business model doesn’t include rapid growth, which, he adds, isn’t a strategy income trusts were originally intended for.

"The only reason you became a shareholder in Contrans as opposed to GE or Microsoft was because you’re the type of investor that wants a steady, fixed income with less risk, and would forgo gambling that a CEO would take a company from zero to the sky."

And even after the SIFT tax deadline in 2011, Dunford thinks there still may be a niche market for some income trusts. "Lets just say that by then there’s only 12 income trusts left, and we’re still paying a 12-percent return," he muses.

"What’s going to happen to those people who got used to their fixed monthly return and don’t want to buy equities? Where are they going to go? Isn’t it possible that those 12 will be better off than they were at the height of the trust market when everybody [wanted in]?"

Dunford and his shareholders don’t mind waiting a little longer to find out.