# Question about REITs



## robert99a (May 23, 2009)

Hi

Since my investing plans have been destroyed by the economy, I am looking for new ways to invest the few dollars that I have left. I've been reading about REITs and they look interesting but sometimes TOO interesting. 

For example, the Whiterock REIT has paied 28 cents a share every month for the last few years. The price is $15 at the moment. That's over 22% yield. If I put my entire $5000 TFSA in there, I would make over $1100 a year tax free. 

What's the catch? Is this a scam? Why doesn't everybody do this?


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## daveking (Apr 3, 2009)

The catch is that you are assuming that the 22% yield is going to last the entire year. 

It might and it might not. There is no guarantee that the company won't cut distribution.

If you believe the company will continue with the distribution and share prices will continue to grow then it's a good investment.


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## robert99a (May 23, 2009)

Thanks Dave. If that's the only catch then it's not so bad. I expected worse.


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## RI.ca (Apr 28, 2009)

This release is from today. After today's close Whiterock has actually moved into the #1 position in the REITinvestor.ca's ratings & rankings. You can get all the ratings & rankings for free for 10 days on the REITinvestor site.


REITinvestor.ca raises WRK.UN to a #2 Ranking but maintains 3-month target at $14.00.

Whiterock REIT (WRK.UN - TSX) May 27, 2009 REITinvestor.ca raises WRK.UN to a #2 Ranking but maintains 3-month target at $14.00. REITinvestor.ca, a private subscriber-based independent rating and ranking service, has increased Whiterock REIT to a positive #2 ranking but maintained its target price at $14.00. Following a review of Whiterock REIT’s Q1-09 report, REITinvestor.ca is of the opinion that the WRK.UN payout is safe for the remainder of 2009, but does not expect any price appreciation for the foreseeable future. Of note to REITinvestor.ca are the following: - REITinvestor.ca estimates that Distribution Payouts continue to exceed 100% of Distributable Income, and expects that this margin will increase in Q2 when the additional issued equity will require servicing. - Liquidity was greatly improved in Q1, as WRK.UN raised approximately $10M in equity issue and $22M new long term mortgage debt. - Whiterock reported 71% of 2009’s lease expiry has been completed at approximately 15% rental rate increases. - Occupancy weakened slightly from 98.8% in Q1-8 to 97.1 in Q1-09, but is expected to improve in Q2 & Q3. - 59% of revenue is derived from investment-grade tenants, the two largest by rental revenue being the SIQ (Quebec Government) & the Province of Ontario, which combined total 20% of annualized revenue. - Whiterock reported its line of credit facility of $42M to be fully repaid as of May 12, 2009, and is due to be renewed in June 2009. Longer term – Despite solid management skills of Whiterock, REITinvestor.ca continues to believe that the current distribution is unsustainable and will likely need to be cut in the next 24 – 48 months in order to replace the $55M in convertible debentures coming due. While it is difficult to project the economic situation 24 months forward, management appears ready to accept the challenge to improve Distributable Income and minimize the amount of the cut. Overall, we expect WRK.UN to trade in tight range near $14.00 for some time. With its current yield is an excess of 22% at today’s trading price of $15/ unit. REITinvestor.ca does not see much upside to the units at the present time, despite the high yield. WRK.UN units closed on May 26 at $15.10 per unit on the TSX. For more information, visit REITinvestor.ca. 

DISCLOSURE: REITinvestor.ca maintains its own investment fund and has no position in WRK.UN. REITinvestor.ca does not provide investment advice nor does it recommend the purchase or sale of securities, including any REIT units it covers. Please consult your personal professional advisor before investing.


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## ethos1 (Apr 4, 2009)

*RI.ca - a question*



RI.ca said:


> This release is from today. After today's close Whiterock has actually moved into the #1 position in the REITinvestor.ca's ratings & rankings. You can get all the ratings & rankings for free for 10 days on the REITinvestor site.
> 
> REITinvestor.ca raises WRK.UN to a #2 Ranking but maintains 3-month target at $14.00.
> .


make your mind up, has all of this changed so much in 30-days from the last update on WRK.UN on April 23 - uh!



RI.ca said:


> Whiterock REIT (WRK.UN - TSX)
> 
> April 23, 2009
> 
> ...


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## RI.ca (Apr 28, 2009)

The ratings & rankings are dynamic and are constantly being changed based on the unit value and company direction. The conference call last week was extremely optimistic and has encouraged our analysts to upgrade the REIT.
The bottom line conclution is that the 22% yield is likely safe for the next 9-12 months, and management is doing everything possible to stabalize and emprove the current situation and deal with the depentures that are coming due in three years. 
The biggest improvement is that Whiterock has raised 30 million dollars in Q1 and paid off all of their 17million credit facility and is now sitting with very healthy liquidity ratio. (All this is news that has been released in the last two weeks.)
This may not be a great situation for unitholders who paid over the 14.80, but REITinvestor's fund does not hold any units of WRK at the moment.


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## ethos1 (Apr 4, 2009)

RI.ca said:


> The ratings & rankings are dynamic and are constantly being changed based on the unit value and company direction. The conference call last week was extremely optimistic and has encouraged our analysts to upgrade the REIT.
> The bottom line conclution is that the 22% yield is likely safe for the next 9-12 months, and management is doing everything possible to stabalize and emprove the current situation and deal with the depentures that are coming due in three years.
> The biggest improvement is that Whiterock has raised 30 million dollars in Q1 and paid off all of their 17million credit facility and is now sitting with very healthy liquidity ratio. (All this is news that has been released in the last two weeks.)
> This may not be a great situation for unitholders who paid over the 14.80, but REITinvestor's fund does not hold any units of WRK at the moment.


so you're saying with 100% confidence to folks that understand the risk to buy WRK.UN in, at, or between $14 - $14.80, with the reassurance that the 22% is (likely) safe?

Understanding that there are no guarantees in life, would anyone buy WRK based on that


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## RI.ca (Apr 28, 2009)

Every REIT is extremely complexe and cannot be summarized in a few sentences. For a complete drill down on the REIT you can visit REITinvestor.ca. You can also listen to the Whiterock conference call on their website to have any questions concerning their company clarified, obviously we cannot control the decisions that management make.
Also keep in mind that the rankings & ratings are also relative to the other REITs.


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## ethos1 (Apr 4, 2009)

RI.ca said:


> Every REIT is extremely complexe and cannot be summarized in a few sentences. For a complete drill down on the REIT you can visit REITinvestor.ca. You can also listen to the Whiterock conference call on their website to have any questions concerning their company clarified, obviously we cannot control the decisions that management make.
> Also keep in mind that the rankings & ratings are also relative to the other REITs.


good answer

BTW, I do not like the www.REITinvestor.ca website because its noisy & folks have to sign up.

It also looks like you cant get to see too much for free - unless you pay for something up to $175/mth

Can you tell us RI.ca more about your investment fund and what that is all about?


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## RI.ca (Apr 28, 2009)

I agree that the site is noisy. Specifically the homepage, the rest is clearer. 
You can also get a 10 day free trial, and the monthly membership is only $35 Canadian and gives access to both level 1 (ratings, rankings & drill downs) as well as level 2 (the RI.ca fund). 

The fund issues clear buy or short positions on REITs, along with an explination for why the fund has taken that position. The fund has been outperforming the TSX and XRE all year and averages 25% an each position. A full transaction history is also available in the fund section.


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## robert99a (May 23, 2009)

RI.ca said:


> This may not be a great situation for unitholders who paid over the 14.80, but REITinvestor's fund does not hold any units of WRK at the moment.


If I understand RI.ca correctly, this #2 ranking REIT is no good at 14.91 (closing price today).

So which REIT is a buy today?


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## Spidey (May 11, 2009)

robert99a said:


> If I understand RI.ca correctly, this #2 ranking REIT is no good at 14.91 (closing price today).
> 
> So which REIT is a buy today?


These are obviously complicated investments as no one has been able to fully answer my questions about Boardwalk REIT. (Not to say that I didn't get some helpful responses.) Strange seeing as Boardwalk is one of the largest holdings in the widely held Ishares REIT ETF (XRE). 

I'm definitely not an expert but I start out taking a bit of time to look at the balance sheet and ratios on TSX.com and globeinvestor.com. In my opinion it stands to reason that more debt/equity is bad and less debt/equity is good. I also look at the book value. Apparently net asset value is more often used with REITs but I still maintain that a lower price/book value is desirable over a greater price/book value. I also compare P/E and P/CF ratios (the lower the better). After checking out TSX and Globeinvestor, I order the prospectus if I'm still interested. There's a clover shaped icon in Globeinvestor that you can click to order the prospectus for free either by email or mail or both.

In my not fully educated opinion, the safest bets to start a REIT portfolio would be Riocan (REI.UN) and Calloway (CWT.UN). Riocan is the largest Canadian REIT and Calloway owns some impressive shopping centers that are often anchored by Wallmart stores. You will get about half the dividend as for Whiterock, but more security due to lower percentage of debt, better P/E ratios, etc.

All that being said, I took a quick look at Whiterock and it looks interesting and I might add a small position. Its just that it wouldn't be my starting point for building a REIT portfolio.


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## robert99a (May 23, 2009)

Thanks for your post Spidey. That's how I am going to continue to study REITs before I put some money in there.

It is surprising that REITs aren't more discussed here considering their yield. That's why I am suspicious about them... With such a high yield, why are investors ignoring them? My post got almost no replies.

When something looks too good to be true, it normally is.


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## takingprofits (Apr 13, 2009)

robert99a said:


> With such a high yield, why are investors ignoring them?


Reits are not that attractive to a lot of investors at this point in the cycle because investors are looking for growth. Reits are generally trading in a range so there is little expectation of share price growth. One can buy a growth stock and get a 30% pop in a couple of weeks which makes a 10% annual yield from a Reit look piddly.

Just an observation about Calloway. I personally would not look at the fact that Walmart is their biggest tenant as being a plus. For me that would be a reason to avoid the stock given Walmart's penchant for putting the boots to their suppliers.

Also, regarding the market value of Reits - when buying an income property, investors value the property by the income generated and not by the comparative value of the bricks and mortar like you would for a house. 

Reits are income properties bundled together so the book value has little bearing on the value of a Reit. Financing does have a bearing on the value though as as higher rates cuts into the income earned.


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## Spidey (May 11, 2009)

robert99a said:


> Thanks for your post Spidey. That's how I am going to continue to study REITs before I put some money in there.
> 
> It is surprising that REITs aren't more discussed here considering their yield. That's why I am suspicious about them... With such a high yield, why are investors ignoring them? My post got almost no replies.
> 
> When something looks too good to be true, it normally is.



There are some valid reasons that unit trusts and REITs in particular can pay higher dividends than corporations. These type of investment vehicles are set up to pay out the maximum amount possible in dividends. As I understand it, unit trusts generally are not paying dividends in after-tax dollars and pass on the profits to the hands of investors. Corporate profits tend to be taxed at a fairly high rate and only what's left can be offered as dividends. So with unit trusts, taxes are generally only deducted once in the hands of investors rather than twice as with corporations (once against corporate profits and once by the investor). Also, real estate allows investors to deduct depreciation and therefore make larger profits. Buildings can be depreciated even if the actual market value of the property has increased. With REITs this type of benefit is passed on through to investors. 

These are just a couple of examples of why REITs can pay higher dividends. There are other reasons as well. Corporations are often more concerned with putting profits toward future growth rather than paying them out to shareholders.


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## robert99a (May 23, 2009)

takingprofits said:


> Reits are not that attractive to a lot of investors at this point in the cycle because investors are looking for growth. Reits are generally trading in a range so there is little expectation of share price growth. One can buy a growth stock and get a 30% pop in a couple of weeks which makes a 10% annual yield from a Reit look piddly


Hi, thanks. I understand now why REITs aren't popular. I wish I knew how to pick the stocks that go up 30% in a few weeks.


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## robert99a (May 23, 2009)

Spidey said:


> There are some valid reasons that unit trusts and REITs in particular can pay higher dividends than corporations. These type of investment vehicles are set up to pay out the maximum amount possible in dividends. As I understand it, unit trusts generally are not paying dividends in after-tax dollars and pass on the profits to the hands of investors. Corporate profits tend to be taxed at a fairly high rate and only what's left can be offered as dividends. So with unit trusts, taxes are generally only deducted once in the hands of investors rather than twice as with corporations (once against corporate profits and once by the investor). Also, real estate allows investors to deduct depreciation and therefore make larger profits. Buildings can be depreciated even if the actual market value of the property has increased. With REITs this type of benefit is passed on through to investors.
> 
> These are just a couple of examples of why REITs can pay higher dividends. There are other reasons as well. Corporations are often more concerned with putting profits toward future growth rather than paying them out to shareholders.


Thanks for the post. What this means is that I do NOT understand REITs well enough to put money in them yet. I need a lot more research.


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## furgy (Apr 20, 2009)

robert99a said:


> Hi, thanks. I understand now why REITs aren't popular. I wish I knew how to pick the stocks that go up 30% in a few weeks.


Don't we all wish that.

Don't be discouraged from investing in REIT's , they're pretty simple really , when investing in a REIT , you are investing for income and have a chance for capital gains as well , the best of both worlds.

Investing in companies that don't pay dividends and just hoping for capital appreciation is more speculation than investing and can be riskier in my opinion.

REIT's should be a part of anyones portfolio , I consider them as part of my fixed income allocation , even thru this whole market downturn my REIT's are providing a nice distribution.

As with any investment look for beaten up companies in sectors that are destined to return in value as the economy returns to normal , one I particularily like and own a considerable position in is TR.UN they are dependant on gas , oil , and mining in Canada.

I bought in originally at $6 and have done well on distributions for the last two years , when they cut their distribution the share price dropped to around $1.80 , I added more to my position at that price and am still getting a great return as well as capital gain as the unit price is now at about $2.75.

I am getting about a 28% return on the shares I bought at $1.80 , as well as a capital gain of 50% so far , where else are you going to get returns like that on your money?


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## ethos1 (Apr 4, 2009)

robert99a said:


> Thanks for the post. What this means is that I do NOT understand REITs well enough to put money in them yet. I need a lot more research.


even the ever so supposingly good riocan (rei.un) has its issues.

Do not be deceived by yields

From the May 27 meeting c&p'd from the National Post

_*In what has become a standard at RioCan annual meetings, the session ended with the REIT noting what its total return to shareholders had been since the last meeting. This past year the REIT has lost unitholders 25.7% of their money -- a second straight year of negative returns.

"I'm sorry. And hopefully, we'll do better next year," Mr. Sonshine said.

*_

read the rest here

http://www.financialpost.com/personal-finance/story.html?id=1637096


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## ethos1 (Apr 4, 2009)

furgy said:


> Don't we all wish that.
> 
> Don't be discouraged from investing in REIT's , they're pretty simple really , when investing in a REIT , you are investing for income and have a chance for capital gains as well , the best of both worlds.


try to assess the best you can the risk factor, such as a dividend cut or a stock price drop - ROI is not always what it seems



> Investing in companies that don't pay dividends and just hoping for capital appreciation is more speculation than investing and can be riskier in my opinion.


crap shoot, I agree & that is why my investing strategies looks for three things - Low PE, dividends and optionable. If its 10% in 6-moths and I get called, I really dont care. If I dont get called and I am still holding the stock - simply repeat

This I do with Banks



> REIT's should be a part of anyones portfolio , I particularily like and own a considerable position in is TR.UN they are dependant on gas , oil , and mining in Canada.
> 
> I bought in originally at $6 and have done well on distributions for the last two years , when they cut their distribution the share price dropped to around $1.80 , I added more to my position at that price and am still getting a great return as well as capital gain as the unit price is now at about $2.75.
> 
> I am getting about a 28% return on the shares I bought at $1.80 , as well as a capital gain of 50% so far , where else are you going to get returns like that on your money?


you took a bath on TR.UN on the earlier purchases, so everything is not quite as you say, except that you have a chance it seems for now to recoup the drop and dividend cut buying when you did at $2 wasn't it

Good luck to those that buy & hold REIT's for now


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## Spidey (May 11, 2009)

_takingprofits wrote:

Just an observation about Calloway. I personally would not look at the fact that Walmart is their biggest tenant as being a plus. For me that would be a reason to avoid the stock given Walmart's penchant for putting the boots to their suppliers._


I've heard this arguement before, but with respect, I don't agree. While, I'm sure that Walmart will attempt to strike the best leasing agreement, I don't agree that negotiating with a landlord is the same as, say, negotiating with a garment supplier for the following reasons:

- Walmarts are typically located in prime locations that I don't think they would be anxious to vacate.

- Unlike changing garment suppliers, changing locations would be extremely expensive, probably costing millions of dollars.

- It often isn't an easy battle placing a Walmart as there is often a vocal "anti-Walmart" lobby.

- For what it's worth, I've read that Walmart and Calloway have a very friendly business relationship.

_Ethos1 wrote:_

_even the ever so supposingly good riocan (rei.un) has its issues.

Do not be deceived by yields

From the May 27 meeting c&p'd from the National Post

In what has become a standard at RioCan annual meetings, the session ended with the REIT noting what its total return to shareholders had been since the last meeting. This past year the REIT has lost unitholders 25.7% of their money -- a second straight year of negative returns.

"I'm sorry. And hopefully, we'll do better next year," Mr. Sonshine said._

Isn't that more of an argument to not have bought Riocan one or two years ago, rather than to not buy it now?


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## ethos1 (Apr 4, 2009)

Spidey said:


> _* on what Ethos wrote
> 
> "From the May 27 meeting c&p'd from the National Post
> 
> ...



Nope, hindsight is still 20/20


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## RI.ca (Apr 28, 2009)

*REITinvestor.ca maintains a cautious #3 Ranking for CUF.UN and reduced its 3-month ta*

REITinvestor.ca maintains a cautious #3 Ranking for CUF.UN and reduced its 3-month target at $13.00

Cominar REIT (CUF.UN - TSX) May 28, 2009 REITinvestor.ca maintains a cautious #3 Ranking for CUF.UN and reduced its 3-month target at $13.00 Following a review of Cominar REIT’s Q1-09 report, REITinvestor.ca is of the opinion that the CUF.UN payout will be strained, but safe, for the remainder of 2009. However REITinvestor.ca today lowered CUF.UN target price from $14.00 to $13.00. Of note to REITinvestor.ca are the following: - REITinvestor.ca estimates that Distribution Payouts will exceed 100% of Distributable Income going forward following the issuance of 4.8M units (approximately 10% of previous outstanding units) in April 2009. - Liquidity was improved by the issuance of units. However, REITinvestor.ca estimates that Cominar REIT will require most of its available credit facility to finance its committed development pipeline, which is estimated by management to be $50M for the remainder of 2009. - It remains uncertain to REITinvestor.ca whether Cominar REIT will be able to fill all of its current 671,420 sq ft development projects at the projected rental rates. In particular, the 396,000 sq.ft. Complexe Jules-Dallaire Class A office project in Quebec City is currently only 33% leased and is scheduled to begin accepting tenants later in 2009. - Cominar REIT reported that “properties under development and land held for development” increased from approximately $94M in Q4-08 to $135M in Q1-09. The direct carrying cost of these properties is a concern to REITinvestor.ca in the future. CUF.UN units closed on May 28 at $14.70 per unit on the TSX. For more information, visit REITinvestor.ca. 

DISCLOSURE: REITinvestor.ca maintains its own investment fund and has no position in CUF.UN. REITinvestor.ca does not provide investment advice nor does it recommend the purchase or sale of securities, including any REIT units it covers. Please consult your personal professional advisor before investing.


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## robert99a (May 23, 2009)

furgy said:


> Don't we all wish that.
> 
> Don't be discouraged from investing in REIT's , they're pretty simple really , when investing in a REIT , you are investing for income and have a chance for capital gains as well , the best of both worlds.
> 
> ...


takingprofits says that people are interested more in stocks than reits because they can get a 30% return in a few weeks instead of a 22% yield over a year. The problem with that is, how to pick the right stock? Whiterock has had a 28 cents/unit/month dividend for a couple of years. Isn't it easier to pick that than to look for a 30% return in a few weeks on some company stock? I would have thought that finding a 30% return like that would not be easy. 

Thanks for the additional information regarding REITs. I have not given up on them yet.


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## takingprofits (Apr 13, 2009)

robert99a said:


> takingprofits says that people are interested more in stocks than reits because they can get a 30% return in a few weeks instead of a 22% yield over a year. The problem with that is, how to pick the right stock? Whiterock has had a 28 cents/unit/month dividend for a couple of years. Isn't it easier to pick that than to look for a 30% return in a few weeks on some company stock? I would have thought that finding a 30% return like that would not be easy.


Finding stocks that are likely to have a good increase in the short term takes a bit of study - both the fundamentals and also technical analysis need to be taken into account. Not all investors have the skill or inclination to do that research and yes, in those cases a stable yield from a REIT is a good option.

REITS too can go up by 30% quite quickly although there are usually better opportunities for such increases elsewhere. 

On April 27 I bought Artis Reit (ax.un.to) for $6.19 and sold on May 15 for $8.13 - a 30% gain. 

On April 27 I also bought oil company NVA.to for $7.72 and sold on May 7 for $10.60 - about a 35% gain. I also bought VNP.to for $5.95 and sold it also on May 7 for $7.38 - for only about a 22% gain in 9 market days.

It is not luck - and the opportunities are not always there. I said in my earlier post that at *this point in the cycle* many investors are looking for better returns than REITs usually offer. There are stocks that have been beaten down that have been moving up - beginning with the financials back in March.

If you want the larger returns than collecting dividends provides, it is a matter of doing the research to find stocks that are likely to rise in value and identifying the entry and exit points. It can be time consuming but the rewards are there.


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## furgy (Apr 20, 2009)

ethos1 said:


> you took a bath on TR.UN on the earlier purchases, so everything is not quite as you say, except that you have a chance it seems for now to recoup the drop and dividend cut buying when you did at $2 wasn't it
> 
> Good luck to those that buy & hold REIT's for now


That's one way to look at it.
Here's how I see it.

Even tho the main reason for buying REIt's is income , figuring I have gotten 22% of my original $6 unit price back in distributions over the last year and a half , that brings my initial purchase price realistically to $6-22%= $4.68.

I doubled up on my shares at $1.80 bringing my DCA to $3.24 , unit price is now $2.75 , I'm down by 15% , not much of taking a bath in my opinion when you factor in most of my equities were down by 30 to 70 %(I still have shares of teck that i bought at $32.00) , also I'm getting a distribution of 15% on my DCA price of $3.24 , beats having it in GIC's at 2-3%.

You also have to do your due diligence and have faith in the company you invest in , I believe this one will return to normal with the economy and the distribution will re-instated to $1.20 bringing my return on investment up to 30% or better.

The downside is that _any_ company can go broke but I wouldn't invest in a company that I thought might end up in that position.

That's how I see it anyway , only time will tell.


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