With few exceptions, Canadian trusts lack the legions of accountants needed to file full-year earnings statements quickly. Most years, that hardly matters. In early 2008, however, the wait for numbers has only heightened uncertainty and, therefore, volatility.

The good news is numbers count, even in a fear-drenched market like this one. Trusts that continue to put up good ones will keep paying their generous distributions and eventually recover whatever ground they lose now and then some.

Two that measured up in the fourth quarter are High Yields of the Month Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF) and Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF). Better, both have affirmed a strong outlook for 2008 in what have proven to be recession-resistant energy infrastructure industries.

It’s hard to find anything worrisome in Keyera’s fourth quarter and full-year report. The bottom line number—distributable cash flow—was 42 percent higher in 2007 than a year ago. Meanwhile, fourth quarter earnings before income tax and noncontrolling interest surged 65 percent, as profitability actually accelerated in the fourth quarter.

The numbers behind the headliners were more impressive still. The gathering and processing division, which accounts for roughly half of profits, saw earnings rise 25.4 percent for the quarter and 18.7 percent for the year. Natural gas liquids (NGL) infrastructure operations (roughly a quarter of earnings) were the laggard.

Net rose 3.8 percent for the year, though it slipped 7.6 percent in the quarter. But that shortfall was dwarfed by the ninefold surge in fourth quarter profit from marketing operations, which leverage the trust’s assets. That division’s bottom line also rose 69.7 percent for the year.

Keyera’s rapid growth was achieved with only a modest 6.9 percent increase in fourth quarter debt interest. And the trust actually had a net retirement of minus 2.7 percent of its outstanding shares. Some CAD30 million in growth capital projects along with distributions were covered entirely by cash flow generated by the business itself. That’s a standard Keyera has upheld since it became a trust in 2003.

Looking ahead, Keyera’s growth will continue to be driven by two things: efficiency in running its current asset base and its ability to strategically grow that base. Gathering and processing results, for example, will benefit in 2008 from the successful completion of maintenance turnarounds at four major gas processing plants.

The trust is planning between CAD80 million and CAD100 million in growth capital projects in 2008. They include an ethane extraction project at an existing gas processing plant and expanding transport capability at the Fort Saskatchewan facility, an emerging energy hub in the heart of the oil sands development region. Management also plans a new storage cavern at Fort Saskatchewan, part of an ambitious plan to boost the trust’s capacity at the facility by 37 percent over the next five to six years.

The first cavern is anticipated to go into service in 2009. After that, a progression of new assets should continue to come on stream, lifting cash flow and distribution-paying power further still.

The greatest risk to all energy infrastructure trusts is for a slowdown in oil and gas production to reduce demand for their facilities and, therefore, cut into cash flow. But despite the sharpest slowdown in a generation for Canadian natural gas drilling, Keyera’s facilities remain in heavy demand, with throughput actually increasing 3 percent in 2007. More important, fourth quarter throughput rose 9 percent over 2006 levels and 6 percent over third quarter 2007.

The acceleration in activity was in large part due to the successful asset expansions undertaken by the trust in recent years. But it was also due to reviving producer activity around its facilities, a promising sign for 2008 and a testament to the assets’ superior location as well. And that trend will be enhanced if natural gas prices continue their recovery.

Rising cash flow from a superior asset base is a sure-fire formula for strong distribution growth, and Keyera didn’t disappoint, hiking its payout another 8 percent last month. At this juncture, management appears to have no plans to alter the trust’s structure before 2011.

There was an interesting passage buried in its fourth quarter earnings release, however, alluding to a potential amendment to the trust tax law. The provision would “allow a trust or partnership to hold a diversified portfolio investment though one or more portfolio investment entities” without “being subject to the Distribution Tax.”

Management previously alluded to unused “tax pools” that can be used to shelter income after 2011. These were valued at CAD325 million as of Jan. 1, 2008, or approximately 14 quarters of distributions at the current rate. And management further alluded to holding down distribution increases now in anticipation of having to absorb taxes later. If this new provision is adopted, the trust said it may reorganize again, presumably to shield income further still from the trust tax.

However this shakes out, the upshot is investors can be very secure that Keyera’s yield of nearly 8.5 percent is only going to keep growing in coming years. Those numbers are the best possible antidote to current market turmoil. Keyera Facilities Income Fund is a buy up to USD21.

Macquarie Power & Infrastructure doesn’t have Keyera’s growth numbers. Its core business of carbon-neutral power production, however, is arguably steadier, and it has a very strong parent in Australia’s Macquarie Bank. Macquarie Power & Infrastructure’s cash flow is further supplemented by a 45 percent indirect investment in Leisureworld, a partnership operating long-term care homes that’s 55 percent owned and operated by another unit of Macquarie Bank.

Like all Macquarie Bank affiliates, Power & Infrastructure was set up to be acquisitive. And despite impending 2011 taxation and other limitations, that’s precisely what management has continued to do.

Last year, Power & Infrastructure completed the most aggressive purchase in its brief history, grabbing the assets of Clean Power Income Fund at barely book value. The move immediately made the trust a leader in carbon-neutral power production in North America, and further expansion is certain. At the same time, Leisureworld has increased its asset pool, which should further boost Power & Infrastructure’s cash flow from that investment.

Ultimately, I look for Power & Infrastructure to monetize the Leisureworld asset in some way—probably as part of a deal with its parent—in order to make another major purchase in electric power production. Possibilities include any of the other Canadian power trusts, virtually all of which are now trading at their lowest valuations in several years.

In the meantime, the current base of assets is certainly capable of generating solid cash flows to back up the generous distribution and even allows some room for growth. The trust dramatically calmed fears about its distribution safety earlier this year by boosting it 2 percent.

Fourth quarter and full-year 2007 earnings were another testament to the trust’s emerging strength. Revenue surged 36.4 percent, reflecting six months of owning Clean Power’s wind, hydro and biomass power stations as well as a rate increase at the gas-fired Cardinal power station.

Plant performance was stellar all around, with hydro-generated power surging by 25.5 percent above 2006 levels. Unlike several other power trusts—notably Boralex Power Income Fund (TSX: BPT-U, OTC: BLXJF)—Power & Infrastructure’s hydro facilities are located in the Arctic, Atlantic and Pacific watersheds. In management’s words, this “mitigates the impact of fluctuating water flows on revenue.”

Power & Infrastructure’s wind assets are principally the Erie Shores facility acquired in the Clean Power deal. The plant achieved a 95.1 percent availability rating in 2007, a marked improvement from 90.4 percent a year ago.

That was a major factor behind the near doubling of the capacity factor to 28.1 percent from 14.4 percent a year earlier. The capacity factor essentially measures how much power is actually produced, which is generally lower for wind plants than baseload power because of wind variability. The biomass plant experienced a lower capacity factor (93.1 percent versus 97 percent) because of repair outages but was still a strong contributor to profits.

Leisureworld increased revenue 5.6 percent and pushed up income from operations by 7.2 percent. Government funding was key, but the trust also enjoyed strong increases in occupancy to 98.4 percent from 95.3 percent last year.

Overall, distributable cash flow—which had lagged earlier in the year—rose a solid 6.8 percent. That brought the payout ratio down to a respectable 88 percent, further underscoring the safety of the distribution.

Looking ahead to 2008, much of Power & Infrastructure’s cash flow is locked in under long-term contracts. The hydro assets generally experience little variability in output from year to year. Performance of the Erie Shores facility is assured at a 97 percent availability factor by the turbine supplier General Electric.

The biomass plant will require a 24-day maintenance outage in May, part of a seven-year cycle. It’s supported by a long-term fuel supply agreement, again limiting the risk of higher wood-waste costs such as those anticipated by Boralex in 2008. Leisureworld will be integrating seven new centers into its asset base, which should boost cash flow from that investment as well.

It all adds up to a very stable picture, even if US economic weakness does cause more trouble in Canada than is currently apparent. And with that kind of yield, it’s scarcely a hardship to hold Macquarie Power & Infrastructure as we wait for investors to value it higher than a paltry 1.08 times book value. Cheap, high yielding and solid, Macquarie Power & Infrastructure is a buy up to USD12.

For more information on both Keyera and Macquarie, visit the How They Rate Table. Click on the “.UN” symbol to go to the Web site of our Canadian partner, MPL Communications, for press releases, charts and other data. These are substantial companies, so any broker should be able to buy them, either with their Toronto or their over-the-counter (OTC) symbols. Ask which way is cheapest.

Note that both trusts pay qualified dividends in the US, and 15 percent of distributions are withheld at the Canadian border. Tax filing information is listed on the Canadian Edge Web site under Income Trust Tax Guide. The withheld distributions can be recovered by filing a Form 1116 with your US income taxes.

Keyera Facilities Income Fund & Macquarie Power & Infrastructure Fund
Toronto Symbol	KEY-U	MPT-U
US Symbol	KEYUF	MCQPF
Recent USD Price*	19.64	8.33
Yield	8.1%	12.5%
Price/Book Value	3.23	1.09
Market Capitalization (bil)	CAD1.229	CAD0.419
DBRS Stability Rating	none	none
Canadian Edge Rating	1	3