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Saizen REIT: Still a good investment for income?

Wednesday, August 27, 2014

Saizen REIT is now one of my top 3 investments in S-REITs and in a recent talk, I said the same thing. I also explained why I invested in Saizen REIT and why I quadrupled my long position in the REIT when I did.

Anyway, Saizen REIT's latest presentation is now available for viewing and I have attached the link: here.


DPU: 3.1c.

While I believe that the weakness in the Japanese Yen is likely to continue for many more years, residential properties' occupancy and rental rates should start to pick up in the next couple of years if Abenomics gain even more traction.

Having said this, remember that Saizen REIT is distributing income in an amount that pretends that its loans are non-amortising in nature. What is the effect? Amortisation of loans cost 1.46c per unit which means if the REIT did not have the cash resources to pay for this and if the money were taken from income generated by the REIT's portfolio of properties, only 1.64c would have been available for distribution to unit holders this time.

See related post #1 at the end of this blog post.

NAV/unit: $1.22

In JPY terms, the valuation of properties in the REIT's portfolio seems to be rising and in one of my earlier blog posts, I shared that Saizen REIT's real estate assets could be more undervalued than we think.

See related post #2 at the end of this blog post.



Gearing: 37%.

Although Saizen REIT published their net gearing as 31%, I will take 37% for a more conservative guidance. I also want to remind myself that Saizen REIT uses its cash resources to offset amortisation cost. See earlier point on DPU above.

Weighted Average Loan Interest Rate: Less than 3%.

Debt profile: Earliest loan maturity in 2020.

Unlike most other S-REITs, Saizen REIT is able to secure loans with relatively long tenures which makes a lot of sense since real estate investment is essentially a long term commitment. The inability to refinance when loans mature was a reason why many S-REITs were caught in a bind during the GFC only a few years ago. Some of Saizen REIT's loans actually only mature in years falling in between 2031 to 2044.


Occupancy: 91%

There is still room to bump up income by getting more tenants but this would really depend on whether the Japanese economy improves meaningfully but with plans to allow more foreigners to join the economy, things could start looking up.

See related posts #3 and #4 to hear me talk to myself a bit more about the REIT. For me, Saizen REIT is still a great investment for income.

Related posts:
1. Saizen REIT: Is the DPU sustainable?
2. Undervalued and possibly more so.
3. Rewarding patient investors.
4. Saizen REIT: A foreign talent.

Two blog posts I would like the "recovery group" to read.

Tuesday, August 26, 2014

Earlier this month, I shared that I was going to give a talk and that talk happened last night. After the talk, I went home and thought about it and only fell asleep at 2am, maybe, 3am. Not too sure. I am terrible, I know, but that's me. Insomnia is nothing new.



Insomnia? Banana...

Anyway, in case participants of last night's session should visit my blog, here are the two other blog posts I would like for them to read:

1. How to make recovering from investment losses easier?

2. Managing exposure in AK's investment portfolio: Examples.

Of course, anyone is welcome to read them too. No bias here. I nice or not?

Find out who invited me to give a talk and also read the review: here.

How to earn 6.30% interest after 4 years?

Monday, August 25, 2014

Someone tried to interest me in this not too long ago:


I have forgotten about it until I saw an email advertisement recently.

Any interest in this "interest"? Well, I blogged about why it did not interest me before and if you are interested, please read related post number 1 at the end of this blog post.

What I find objectionable about this advertisement is the use of the word "interest". What do we think of when a bank promises us a certain interest rate? What do we understand by the word "interest"?

Definition of "interest":
Money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.

When a bank promises an interest rate of 6.3% after 4 years to us, most people would interpret it as a fixed deposit with a total of 6.3% in interest paid after 4 years (or about 1.575% per annum). If we asked any reasonable person, that would be the view. Then, if the product is not what any reasonable person think it is, we have a problem, don't we?

Read the small print:
"Because the Structured Deposit is structured with the objective of returning your initial investment amount only at maturity, repayment of your initial investment amount does not apply if you terminate the structured product prior to maturity. You may potentially lose the principal sum invested if the investment is not held to maturity. There is no unconditional guarantee of repayment as repayment is subject to the creditworthiness of the (bank) i.e. if (bank) defaults, you may lose your initial investment amount."

This is a structured deposit, not a fixed deposit. It is an investment product and not a savings product. It is very different from what any reasonable person would have thought it was looking at the advertisement.

And the disclaimer:
"You must seek your own independent advice from a licensed or an exempt financial adviser regarding the appropriateness of investing in this product, before making a commitment to purchase this product. In the event that you choose not to seek your own independent advice from a licensed or an exempt financial adviser, you should carefully consider whether the product is suitable for you. (bank) has no fiduciary duty towards you, nor does it assume any responsibility to advise on, or make any representation as to the appropriateness, suitability or possible consequences of investing in this product."

The person who served me was quite pushy and I had to give her a piece of my mind. I was there to start a 15 months fixed deposit which promised to pay an interest of 1.25% per annum.

Now, this is not the point of this blog post but, theoretically, over 4 years, if I could get paid 5% in interest by putting my funds in a fixed deposit that pays 1.25% per annum, why would I bother taking on greater risk for another paltry 1.3% "interest"?

I don't like it when advertisements are worded in ways which could mislead and this advertisement ranks highly on the AK Dislike Scale.

Related posts:
1. Why fixed deposits over structured deposits?
2. Nobody cares more about our money than we do.

 
 
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