Proposed changes related to the taxation of SIFTs and REITs.

This follows on the heels of announced changes only 7 months ago and continues along in a series that first began with the Oct-31-06 "Halloween Surprise".

Interest And Rent Paid Within A Stapled Structure Will No Longer Be Deductible For Tax Purposes – Broadly speaking, a stapled security involves two separate securities that are “stapled” together such that the securities are not freely transferable (tradable) independent of each other. Stapled structures in-place on or before July 19, 2011 will have a one-year transition period to July 19, 2012 before the amendments apply. During this transitory period, interest and rent payments between legal entities within the stapled structure will continue to be deductible expenses.

The proposals include changes in respect of:

· publicly-traded stapled securities of SIFTs, REITs and corporations;

· excluded subsidiary entities under the SIFT regime;

· non-portfolio property of a corporation under the SIFT regime; and,

· tax installments for SIFTs.

Depending upon the circumstances, eliminating these deductions could materially increase taxable income and cash taxes payable, thus diminishing the tax efficiency of the entire stapled structure.

For example , InnVest REIT is likely to face a growing cash tax expense, beginning in Q3/12. I expect the rate of growth in cash taxes to outstrip the rate of pre- and post-tax AFFO for a number of consecutive years. In the near-to-medium term, the effective cash tax rate (measured as a percentage of pre-tax AFFO) appears unlikely to exceed 20%, although over the long-term, I believe it could break above this level.

Time to Sell Cineplex Inc. (CGX-T)

Cineplex Inc. (CGX-T) has had a good run for me (up over 60% in two years) and now I believe it is due for a correction!

Despite hits such as The Hangover Part II and Kung Fu Panda 2, second-quarter industry box office sales fell short of high expectations. As a result, I am scaling back my financial forecasts for Cineplex Inc.

I purchased the stock when it's dividend yield was close to 8% - currently it is paying 5%. While Cineplex remains good core media holding for investors, other companies with higher yields serve up a better bang for a investor's buck.

Canadian industry box office for the final week of Q2/11 was released. The reported YoY increase for Q2/11 was +1.7%, which compares to revised Q2/11 box office revenue estimate for Cineplex of +2.1% on a “same-store” basis, or +3.1% on a total basis. Despite the modest YoY increase, industry box office performance in Q2/11 was disappointing considering high initial expectations for a more meaningful YoY increase, perhaps in the “low-teens”. Exhibit 1 provides a summary of weekly Canadian industry box office for Q2/11 as well as recent YoY quarterly box office trends for Canada and the “same-store” box office growth and “same-store” forecast for Cineplex through 2012E.

I see better returns elsewhere in the other sectors because;

 (i) relative returns within the coverage universe; is  at 9.1x FTM EV/EBITDA, a valuation premium to the U.S. peers that is at the high end of the historical range;

(ii) little room for further box office disappointment in H2/11 at current valuation levels; and

(iii) potential negative news flow related to premium VOD.