Royalty Income Trust


Royalty Income Trust
A type of special-purpose financing created to hold investments or their cash flows in operating companies. These trusts are neither stocks nor bonds but investment trusts (a legal entity). Royalty trusts buy the right to royalties on the production and sale of a natural resource company and pass on the profits to trust unit holders.

Royalty trusts are attractive to investors because they promise high yields compared to stocks and bonds. They are attractive to companies wishing to sell cash-flow producing assets because they provide a much higher sale price than what is possible with conventional financings.

For example, suppose that ABC oil company has maturing oil wells with well-known rates of production and reserves. The company estimates that it will produce and sell one million barrels per year for the next 20 years at a price of $20 per barrel (thus $20 million per year). ABC wants to sell the wells, but an investment bank suggests that ABC use a royalty trust, so ABC sells all the oil wells to a trust, the XYZ Royalty Fund. ABC receives a payout from the investment bank and will still manage the company for a fee.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Income trust — An income trust is an investment trust that holds income producing assets. The term also designates a legal entity, capital structure and ownership vehicle for certain assets or businesses. Its shares or trust units are traded on securities… …   Wikipedia

  • Trust — may refer to:* Trust (social sciences), a relationship of reliance. ** Trust Fall, a trust building game.In law: * Trust law, where money or property is owned and managed on behalf of another * Escrow, where a thing is held in trust until… …   Wikipedia

  • Royalty trust — A royalty trust is a type of corporation, mostly in the United States or Canada, usually involved in oil and gas production or mining. However, unlike most corporations, its profits are not taxed at the corporate level provided a certain high… …   Wikipedia

  • income — The return in money from one s business, labor, or capital invested; gains, profits, salary, wages, etc. The gain derived from capital, from labor or effort, or both combined, including profit or gain through sale or conversion of capital. Income …   Black's law dictionary

  • income — The return in money from one s business, labor, or capital invested; gains, profits, salary, wages, etc. The gain derived from capital, from labor or effort, or both combined, including profit or gain through sale or conversion of capital. Income …   Black's law dictionary

  • Royalty Units — An ownership unit in a royalty trust. A royalty unit gives the unit holder a stake in the income generated by the holdings of the trust. A royalty trust takes ownership stakes in operating companies or in their cash flows. The royalty trust owns… …   Investment dictionary

  • Real estate investment trust — A real estate investment trust or REIT (  /ˈriːt …   Wikipedia

  • Mutual fund trust — Contents 1 Definition 2 RRSP Eligibility 3 MFTs and Non reporting Issuers 4 References 5 See also …   Wikipedia

  • BP Prudhoe Bay Royalty Trust — Infobox Company company name = BP Prudhoe Bay Royalty Trust company company type = Public (nyse|BPT) company slogan = foundation = New York, New York, United States (1989) location = Headquarters in New York; assets on the Alaska North Slope at… …   Wikipedia

  • Canadian Royalty Trust - CANROY — An oil, gas or mineral company that is organized as a trust rather than as a traditional corporation. The CANROY does not physically operate the oil, gas or mineral assets; operational activities are run by outside parties. Because they are… …   Investment dictionary