Futuremed Healthcare Income Fund

Futuremed Healthcare Income Fund

March 09, 2010 18:53 ET

Futuremed Announces Proposed Conversion to a Corporation

CONCORD, ONTARIO--(Marketwire - March 9, 2010) - Futuremed Healthcare Income Fund (the "Fund" or "Futuremed") (TSX:FMD.UN) today announced its plans to seek unitholder approval to convert from an income trust into a corporation ("Futuremed Corporation"), effective January 1, 2011.

This reorganization is being initiated as a result of the Federal Government's announcement in October, 2006 that changed the way income trusts, such as Futuremed, are to be taxed effective January 1, 2011.

Additionally, Futuremed announced its intention that Futuremed Corporation pay quarterly dividends, commencing in 2011, at an initial annualized rate of $0.675 per share. Futuremed intends to maintain its current distributions at $0.925 per unit annualized ($0.0771 per unit monthly) for the remainder of 2010. The reduced level of distributions reflects the approximate level of taxes that the business will be subject to commencing in 2011.

Raymond Stone, President & Chief Executive Officer of the Fund said: "Today's announcement should provide clarity and certainty surrounding the planned structure and dividend level of the business going forward. Futuremed Corporation will continue to be positioned as a high yielding company and our strategy will remain unchanged as we enter the next phase of our life in the public markets".

Rationale for Conversion

The Trustees and management of Futuremed believe that the proposed conversion is in the best interests of the Fund and its stakeholders and believe the conversion can be expected to provide the following benefits:

  • Enhanced access to capital markets;
  • A corporate structure that is expected to attract new investors and provide a more liquid trading market for our securities; and
  • A simplified tax and legal structure, more comparable to the majority of public companies operating in Canada, providing, among other items, the benefit of reduced internal and external administrative costs.

As well, commencing in 2011, distributions will be characterized as dividends, which, for qualifying investors, provides the benefit of dividend tax credits that would reduce the after tax impact of the lower distributions.

The proposed conversion and distribution change should have no impact on the Fund's strategic and operational focus.

Distribution Plans

Whether or not the business converts to a corporation or remains as an income trust, it will be subject to taxes commencing in 2011 that will reduce the amount of cash flow otherwise available for distribution. Had the business been organized as a corporation in 2009, pro forma taxes would have been approximately $0.25 per unit. It is our current intention that Futuremed Corporation pay quarterly dividends commencing in 2011 at an initial annualized rate of $0.675 per share.

Provided the conversion is approved, such amounts will be taxed as dividends as compared to straight income on unitholder distributions. Certain investors may be entitled to dividend tax credits which would enhance their after-tax yield and significantly reduce the after tax impact of the reduction in distributions. For the remainder of 2010, we intend to maintain our current annualized distributions at $0.925 per unit ($0.0771 per unit monthly).

Conversion Process

Unitholders of record as at April 5, 2010 will be asked to approve the proposed conversion at the Fund's annual and special meeting scheduled for May 13, 2010. Details of the proposed conversion will be included in an information circular expected to be prepared, mailed and filed by Futuremed on or around April 21, 2010 for use at the annual and special meeting. The conversion is expected to occur by way of plan of arrangement (the "Arrangement") under the provisions of the Business Corporations Act (Ontario).

The Arrangement will be subject to approval by not less than two-thirds of the votes cast at the unitholders' meeting and customary conditions, including the receipt of applicable regulatory, court and Toronto Stock Exchange approvals. It is expected that the conversion will be completed on a tax-free rollover basis (subject to filing any required tax elections) with unitholders receiving one share of Futuremed Corporation for each Fund unit held. Upon completion of the Arrangement, Futuremed Corporation will indirectly own and operate the existing business of the Fund and its subsidiaries.

The Board of Trustees of the Fund has retained CIBC World Markets Inc., Goodmans LLP and PricewaterhouseCoopers LLP as its financial, legal and accounting advisors, respectively.

About Futuremed

Futuremed is Canada's leading value-added distributor of consumable nursing home supplies and specialized furniture and equipment to the growing long-term care facilities sector.

Forward-Looking Statements

Certain statements in this press release, including, in particular, statements regarding the Fund's proposed conversion to a corporation, Futuremed Corporation's dividend payment rate following conversion, the Fund's intended distributions for the remainder of 2010, the expected benefits of the conversion, the net effect of the conversion, after taxes, on unitholders' post-conversion income, certain details regarding the approval process and certain income tax consequences in respect of the conversion may constitute "forward-looking" statements under applicable Canadian securities laws. When used in this press release, such statements use words, including but not limited to, "may", "will", "expect", "believe", "plan", "intend", "anticipate", "future" and other similar terminology. These forward-looking statements reflect the current expectations of the Fund's management regarding future events and operating performance, but involve known and unknown risks, uncertainties and other factors which may cause the outcome of the proposed conversion or the actual results, performance or achievements of the Fund and/or Futuremed Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual events could differ materially from those projected herein and depend on a number of factors. These factors include, but are not limited to, the Fund's inability to obtain required consents, permits or approvals, including the approval of the court of the Arrangement and Fund unitholders' approval of the conversion; Futuremed Corporation's inability to meet TSX listing requirements; the failure to realize the anticipated benefits of the conversion, including anticipated cost savings and tax benefits; actual future market conditions being different than anticipated by management and the board of trustees of the Fund; actual future operating and financial results of the Fund and/or Futuremed Corporation being different than anticipated by management and the board of trustees of the Fund; changes in laws and regulations affecting the Fund and its business operations; and changes in taxation of the Fund. There can be no assurance that the conversion will be completed on the terms described in this press release or at all. In addition, there are numerous risks associated with an investment in units of the Fund and the Fund's structure, which are described in the "Risks Related to the Business and Industry" and "Risks Related to the Structure of the Fund" sections in the Fund's management's discussion and analysis of financial condition and results of operations dated March 9, 2010 and the Fund's other public filings on SEDAR at www.sedar.com. Material factors or assumptions that were applied to drawing a conclusion or making an estimate set out in the forward-looking information include: the financial and operating attributes of the Fund as at the date hereof; the anticipated operating and financial results of the Fund from the date hereof to the effective date of the conversion; the successful completion of the proposed conversion of the Fund from an income trust to a corporation; the anticipated operating and financial results of Futuremed Corporation after the effective date of the conversion; the views of management and the board of trustees of the Fund respecting the benefits associated with the conversion; the realization of tax benefits up completion of the conversion; and the views of management and the board of trustees of the Fund regarding current and anticipated market conditions. Readers are cautioned that the preceding list of material factors or assumptions is not exhaustive. Although forward-looking information contained in this press release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements.

The forward-looking statements in this press release speak only as of the date of this press release. Except as required by applicable securities laws, the Fund does not undertake, and specifically disclaims, any obligation to update or revise any forward looking information, whether as a result of new information, future developments or otherwise, except as required by applicable law.

Contact Information

  • Futuremed Healthcare Income Fund
    Daniel Sacks
    Chief Financial Officer
    (905) 761-0068, ext. 2222
    Toll-free investor relations: 1-800-387-7025