EnerVest Diversified Income Trust
TSX : EIT.UN

EnerVest Diversified Income Trust

November 10, 2005 09:00 ET

EnerVest Diversified Income Trust Announces Financial Results for September 30, 2005

CALGARY, ALBERTA--(CCNMatthews - Nov. 10, 2005) - EnerVest Diversified Income Trust (TSX:EIT.UN) ("EnerVest") is pleased to present the financial results for the three month period ended September 30, 2005.

The following excerpts are from EnerVest's quarterly report for September 30, 2005. This report, in its entirety, can be found on EnerVest's website at www.enervest.com, or on the SEDAR website at www.sedar.com.

MANAGEMENT'S DISCUSSION AND ANALYSIS

Portfolio

The portfolio of EnerVest Diversified Income Trust ("EnerVest") remains well diversified comprised of 109 investments in nine asset classes. As at September 30, 2005, the portfolio weightings were:



Oil and Gas 26.1% Energy Distribution 8.3%
Real Estate 18.0% Industrials 5.1%
Consumer Products 16.5% Metals and Minerals 2.2%
Pipeline and Utility 14.1% Paper and Forest Products 1.0%
Transportation and Environment 8.7%


Financial Performance

EnerVest's return to Unitholders was 3.5% for the quarter based on the opening and closing TSX values of $8.27 and $8.35 per unit and distributions of $0.21 per unit. The return for the nine month period was 9.1% based on the opening and closing TSX values of $8.40 and $8.35 per unit, distributions of $0.63 per unit and an average trading value of rights of $0.1869.

Revenues for the third quarter and for the nine month period ended September 30, 2005 increased 44% and 48%, respectively, over the comparative periods in 2004, to $33.9 million and $95.1 million. This increase is due to the larger investment portfolio resulting primarily from equity issues and appreciation of investments.

General and administrative costs, on a per unit basis, decreased 18% and 16% for the three and nine month periods ended September 30, 2005, respectively, to $0.0038 and $0.0123 per unit as the weighted average number of units outstanding increased by 42% and 43%, respectively, over the same periods in 2004. General and administrative costs increased $95,000 (16%) and $365,000 (21%) for the three and nine month periods ended September 30, 2005, respectively, as compared to the corresponding periods in 2004.

Management fees increased by $1.7 million and $4.5 million for the three and nine month periods ended September 30, 2005, respectively, as compared to the same periods in 2004. This is due to the larger net asset value of EnerVest which was primarily the result of the Exchange Offering in October 2004, the Rights Offering in February 2005 and the increase in net assets from operations.

Interest expense increased $730,000 and $1.7 million for the three and nine month periods ended September 30, 2005, respectively, compared to the same periods in 2004. This increase is attributable to a higher level of borrowing during 2005.

EnerVest's net investment income was $26.9 million and $76.1 million, respectively, for the three and nine months ended September 30, 2005, as compared to $19.0 million and $51.7 million in 2004. This increase is primarily due to the larger portfolio.

Gain on sale of investments was $18.2 million for the quarter and $28.8 million for the nine months ended September 30, 2005, as compared to losses of $50,000 and gains of $10.0 million for the comparative 2004 periods. The portfolio had unrealized gains of $111.0 million during the third quarter and $165.7 million for the nine month period, as compared to unrealized gains of $68.7 million and $73.9 million for the same periods in 2004. Return of capital on distributions received during the third quarter and nine months ended totaled $7.0 million and $24.9 million, respectively, a $1.4 million decrease and $2.0 million increase over the comparative 2004 periods.

The resulting increase in net assets from operations was $149.1 million ($0.84 per unit) for the quarter and $245.8 million ($1.42 per unit) for the nine months ended September 30, 2005 as compared to increases of $79.3 million ($0.63 per unit) and $112.8 million ($0.93 per unit) for the three and nine months ended September 30, 2004.

As at September 30, 2005, the net asset value of EnerVest was $1.538 billion ($8.62 per unit), after distributions of $110.2 million were paid to Unitholders during 2005, as compared to the December 31, 2004 net asset value of $1.188 billion ($8.01 per unit).

Cash Distributions

EnerVest distributed $0.21 and $0.63 per unit ($0.07 per unit per month) for the three and nine month periods, respectively, to September 30th in both 2005 and 2004. It is estimated that approximately 50% of this year's distributions will not be included in taxable income. This equates the 10.1% yield on EnerVest units as at September 30, 2005 to an equivalent pre-tax interest rate of 12.8% (assuming a 46.41% tax rate and payment of capital gains tax on the return of capital upon disposition of EnerVest units).

Recent Events

On September 19, 2005, the Canada Revenue Agency ("CRA") announced that it would, until further notice, suspend the issuance of advance tax rulings relating to income trusts. The issues involved are quite complex and the nature and timing of any action on the part of the CRA is uncertain. Though the federal government has previously raised concerns about the income trust structure and possible tax leakage, the unexpected suspension of advance tax rulings resulted in immediate market awareness of the issue and rampant speculation and concern regarding the implications for the income trust sector. As a result, there was a significant market correction in the income trust sector which continued through the majority of October. Coupled with a small rise in interest rates and a lessening of oil and gas prices, there were significant reductions in valuations generally throughout the trust sector. Since the end of October and continuing through the date of this report, valuations have somewhat recovered, though not to the levels immediately before the CRA announcement. Though the third quarter results of EnerVest were strong, the uncertainty and market correction caused by the CRA announcement, as well as other general economic contributing factors, has eroded the unrealized gains accumulated in our portfolio during the third quarter and nine months ended. As of the date of this report, EnerVest had a net asset value of $7.42 compared to the closing TSX market price of $7.31.

As previously announced in a press release dated October 13, 2005, in conjunction with the acquisition of the privately held joint venture that is the sole shareholder of EnerVest Diversified Management Inc. (the "Manager"), EnerVest has reconstituted its management team and board of directors. Cypress Capital Management Ltd. ("Cypress") will remain the investment manager of EnerVest and there will be no impact on the investment management agreement between the Manager and Cypress. There is no change in the investment objective or investment strategy of EnerVest, the key components of which continue to be to maximize monthly distributions relative to risk, maximize net asset value over the life of EnerVest and maintain a diversified portfolio to reduce investment risk.

Outlook

Our outlook for the remainder of 2005 is cautiously optimistic. Uncertainty regarding the trust sector will most likely continue. The threat of additional interest rate increases places additional pressure on the sector. However, the market has slightly recovered from the significant decline immediately following the CRA suspension of tax rulings and we believe that current market prices will remain consistent, if not increasing marginally, during the remainder of the year. The market correction, and resulting lower valuations, affords EnerVest the opportunity to selectively purchase quality investments with solid yields and potential for capital appreciation.

Current positive trends affecting the income and royalty trust sector include continued increasing demand for income producing investments, a strong Canadian economy, the expectation of continued low interest rates, and strong balance sheets and commodity prices in the oil and gas sector.

Negative trends, excluding the above-mentioned CRA issue, include potential interest rate increases, a strong Canadian dollar (negatively impacting several trusts including those in the oil and gas sector), high oil and gas prices (negatively affecting the available cash of trusts utilizing energy as an input and consumer spending) and uncertainty concerning the strength of the U.S. economy (our portfolio has very limited cross-border exposure).

Overall, we are cautiously optimistic for the income and royalty trust sector and for the outlook of EnerVest for the balance of 2005.



ENERVEST DIVERSIFIED INCOME TRUST
STATEMENTS OF NET ASSETS

------------------------------------------------------------------------
------------------------------------------------------------------------
As at September 30, 2005 December 31, 2004
(Unaudited)
($ thousands except per unit amounts) $ $
------------------------------------------------------------------------
------------------------------------------------------------------------

CURRENT ASSETS
Cash 4,159 21,960
Investments, at market value 1,747,888 1,400,222
Accounts receivable 2,319 3
Distributions receivable 11,252 9,422
Current portion of promissory
note receivable - 50
-------------------------------------

1,765,618 1,431,657

Promissory note receivable - 210
Other assets 135 -
-------------------------------------

1,765,753 1,431,867
-------------------------------------
-------------------------------------

CURRENT LIABILITIES
Accounts payable and accrued liabilities 4,432 5,791
Distributions payable 12,495 10,381
Credit facility 210,911 228,000
-------------------------------------

227,838 244,172
-------------------------------------

NET ASSETS 1,537,915 1,187,695
-------------------------------------
-------------------------------------

UNITS ISSUED AND OUTSTANDING (000's) 178,514 148,300
-------------------------------------
-------------------------------------

NET ASSET VALUE PER UNIT $8.62 $8.01
------------------------------------------------------------------------
------------------------------------------------------------------------



ENERVEST DIVERSIFIED INCOME TRUST
STATEMENTS OF OPERATIONS
------------------------------------------------------------------------
------------------------------------------------------------------------

Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------------
(Unaudited) 2005 2004 2005 2004
($ thousands except per unit amounts) $ $ $ $
------------------------------------------------------------------------
------------------------------------------------------------------------

INVESTMENT REVENUES 33,854 23,491 95,137 64,224

EXPENSES
General and administrative 675 580 2,138 1,773
Management fees 4,358 2,704 12,311 7,860
Interest on credit facility 1,933 1,203 4,617 2,930
-------------------------------------

6,966 4,487 19,066 12,563
-------------------------------------

NET INVESTMENT INCOME 26,888 19,004 76,071 51,661

GAIN ON INVESTMENTS
Net gain (loss) on sale
of investments 18,216 (50) 28,815 10,024
Net change in unrealized gains 110,951 68,700 165,739 73,894
Return of capital (6,985) (8,356) (24,858) (22,821)
-------------------------------------

122,182 60,294 169,696 61,097
-------------------------------------

INCREASE IN NET ASSETS FROM
OPERATIONS 149,070 79,298 245,767 112,758
-------------------------------------
-------------------------------------

WEIGHTED AVERAGE UNITS
OUTSTANDING (000's) 178,423 125,546 173,347 120,942
-------------------------------------
-------------------------------------

PER UNIT
Net Investment Income $0.15 $0.15 $0.44 $0.43
Net Gain on Investments $0.69 $0.48 $0.98 $0.50
-------------------------------------

Increase in Net Assets
from Operations $0.84 $0.63 $1.42 $0.93

Management expense ratio ("MER") 1.84% 2.02% 1.81% 1.96%
MER excluding interest 1.33% 1.48% 1.37% 1.51%
------------------------------------------------------------------------
------------------------------------------------------------------------



ENERVEST DIVERSIFIED INCOME TRUST
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------
------------------------------------------------------------------------

Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------------
(Unaudited) 2005 2004 2005 2004
($ thousands) $ $ $ $
------------------------------------------------------------------------
------------------------------------------------------------------------

NET ASSETS, BEGINNING OF PERIOD 1,424,732 863,625 1,187,695 723,366

Increase (decrease) in net assets from:

OPERATIONS 149,070 79,298 245,767 112,758

UNITHOLDER TRANSACTIONS
Net proceeds on issuance
of trust units - (121) 210,276 156,098
Distributions to unitholders (37,474) (26,369) (110,229) (77,274)
Proceeds from dividend
reinvestment plan 1,587 941 4,406 2,426
-------------------------------------

(35,887) (25,549) 104,453 81,250
-------------------------------------

NET ASSETS, END OF PERIOD 1,537,915 917,374 1,537,915 917,374
------------------------------------------------------------------------
------------------------------------------------------------------------


EnerVest is an actively managed, closed-end trust which invests in a diversified portfolio of income, royalty and real estate investment trusts, and limited partnerships, all of which trade on the Toronto Stock Exchange. EnerVest's objectives are to maximize monthly distributions, reduce investment risk, and maximize net asset value over its life. As at November 8, 2005, EnerVest currently has 178,581,478 units outstanding, a net asset value of approximately $1.4 billion and an average trading volume of approximately 480,000 per day for the first ten months of 2005.

The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.

Contact Information

  • EnerVest Diversified Management Inc.
    Kevin W. Wolfe
    President & Chief Executive Officer
    (403) 571-5550 or Toll Free: 1-800-459-3384
    or
    EnerVest Diversified Management Inc.
    J. Ward Mallabone
    Chief Operating Officer
    (403) 571-5550 or Toll Free: 1-800-459-3384
    or
    EnerVest Diversified Management Inc.
    Linda Koroluk
    Investor Relations
    (403) 571-5550 or Toll Free: 1-800-459-3384
    or
    EnerVest Diversified Management Inc.
    Suite 2800, 700-9th Avenue S.W.
    Calgary, Alberta, T2P 3V4
    (403) 571-5550 or Toll Free: 1-800-459-3384
    (403) 571-5554 (FAX)
    Email: info@enervest.com
    Website: www.enervest.com