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Saizen REIT: Divestment of 3 properties.

Thursday, October 14, 2010

Saizen REIT divested 3 more properties in its YK Shintoku portfolio:

Higashi Hakushima Y Building was sold for JPY 145,000,000 (S$2.3 million).  This property is located in Hiroshima, was built in March 2003 and comprises 19 residential units and 4 car park lots. It has an annual property income of approximately JPY 15.1 million or a gross yield of 10.41%. This was sold at a discount of approximately 7.1% to valuation.

Otemachi Y Building was sold for JPY 170,170,000 (S$2.7 million). This property is located in Hiroshima, was built in March 2001 and comprises 24 residential units and 2 car park lots. It has an annual property income of approximately JPY 17.0 million or a gross yield of 9.99%. This was sold at a discount of approximately 5.5% to valuation.

Kinyacho Y Building was sold for JPY 180,542,826 (S$2.9 million).  This property is located in Hiroshima, was built in February 2002 and comprises 24 residential units and 2 car park lots. It has an annual property income of approximately JPY 18.3 million or a gross yield of 10.14%. This was sold at a discount of approximately 4.0% to valuation.


A total of JPY 495,712,826 (S$7.9 million) was fully paid up by the buyers on 13 October 2010. The proceeds will be used for partial repayment of the YK Shintoku CMBS.

Read announcement here.

Related post:
Saizen REIT's properties: Would I buy?

2 comments:

mark said...

Hi AK

What is the impact of selling off assets to reduce loan and gearing? U did a comparison assuming worst case scenario of a foreclosure. A drop in NAV and dpu vs gearing.

How does that compare to the current scenario?

AK71 said...

Hi Mark,

In case YK Shintoku suffers foreclusure, Saizen REIT's NAV per unit would be S$0.36. In such an instance, the NAV per unit would be S$0.28 once all the warrants are exercised. The diluted NAV per unit is based on 1,446,357,417 units and warrant proceeds of S$44.7 million.

YK Shintoku's CMBS has been paid down with the divestment of properties in the last few weeks. It is now a little more than S$90m, if my mental calculations are right.

The divestments thus far hardly have any impact on the NAV per unit as they are a small percentage of Saizen REIT's total portfolio.

As for Saizen REIT's DPU, there is no impact since all the distributable income which might be generated by YK Shintoku goes to repayment of its CMBS and does not go to unitholders as long as it remains in default.

So, the DPU of 0.26c which was given out recently (which was based on only 2 months of distributable income) did not have any contribution from YK Shintoku.

As for gearing level, off the top of my head, I estimate that YK Shintoku's gearing has declined from around 80% to 65% from the continual repayment of the CMBS from the net income it generates as well as the continual divestment of properties.

All the above would make the refinancing of YK Shintoku's CMBS more palatable to potential lenders. Once, refinancing is completed, the following would happen:

1. A lower interest would be payable for YK Shintoku's loan from 7.07% to about 4% (estimated). This would save about JPY 200m annually.

2. YK Shintoku would resume contribution to Saizen REIT's distributable income to unitholders.

The divestment or properties is a necessary evil, in my opinion. Things could only improve in time.

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