SIFCO Industries Inc T.SIF.UN

RE: Sell Energy Savings Income Fund

[baudelaire]

Regarding SIF: Hypothetical example. I'm a stockbroker and I buy a "book" of business from an other broker for $MM. I amortize my cost of $MM over 5 years. I still have all of the clients after 5 years and in fact have added some of their sons and daughters to my book so the cashflows from my original investment have grown over the five year period. Why would you say that this hypothetical stockbroker has to run out and replace a depleted inventory? Sure, for the first five years most of his/her cash flow may only be getting his/her original investment back but as long as the acquired clients stay with him he still has the same "inventory" of income producing assets. Please explain how SIF has "sold" half of its assets since inception to fund the distribution. SIF is a differnet business than say a retailer. For a retailer, what goes out must be replaced to maintain the business and the cash cost of replacing the inventory cannot be paid out. Amortising the electricity and gas contracts relates to the cash spent acquiring them. The "inventory" or the contracted customers acquired is not declining at the rate that their cost is being amortized at. This is obvious from the MD&A. You are confusing these two different things when you claim that SIF has "sold" half of its assets since inception to fund the distribution. Are the unitholders getting some of their original investment back? Yes. Is SIF's "book" declining, no. Another example, when a REIT sells a building, it literally sells a building. When a REIT amortises the cost to acquire the building at 2.5% a year for 40 years they are not "selling" 2.5% of the building every year. They will not have to run out and buy 2.5% more assets. In reality the building has likely gone up in value much more than 2.5% a year for the past 5 years. Amortisation of the cost of the asset does not necessarily reflect a depletion, using up, or sale of the asset at the exact same pace.