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Saizen REIT: AK71 responds to a forum.

Monday, November 8, 2010

This is almost all of my very long comment in Wealth Buch in response to certain things said in a forum on Saizen REIT:

I have talked about the Japanese debt situation and how this has no impact on Saizen REIT before:

Japan's debt issue and Saizen REIT

As for the S$/JPY exchange rate and how the strong JPY is likely to weaken in time, we have to remember that exchange rate is bilateral in nature. The JPY could also weaken if the S$ strengthens.

MAS is allowing the S$ to strengthen in order to contain inflationary pressures. Will it allow the S$ to strengthen much more? If it does, would it not impact our exporters negatively? MAS is likely to be very cautious.

The residential real estate which Saizen REIT is vested in is below replacement cost. This means that no one in his right mind would construct new buildings. The supply side has stalled. The demand for inexpensive accommodation is strong and I have a blog post on this recently.

Asterisk Realty: Advisory for Japanese real estate

Saizen REIT owns freehold properties. Income distribution is therefore perpetual, ceteris paribus.
As for rental rates lowering 4% in Saizen REIT's latest tenancy renewals, how much of its total tenancy were so affected? Would such a trend continue?

The assumption that rental rates would continue to lower in Japan is just an assumption and is something waved around by people who think that Japan is going to the Land of the Dodos.

Jim Rogers is long JPY and believes that it will remain strong.  Marc Faber believes that people are so bearish on Japan and have written it off that it is a strong contrarian play. The JPY is still viewed as a safe haven.

In recent months, China's purchase of JGBs caused the Japanese government some concerns. The Chinese recognise the safety of JGBs compared to US Treasuries and have been diversifying away from the latter. As long as there remains a strong demand for the JPY for various reasons, the JPY is likely to stay strong. It's simple economics of supply and demand.

The recent revival of interest in Japanese real estate because of the sector's amazing yield is likely to increase demand for the JPY too. People who want to invest in Japanese real estate must pay in JPY.

It is not wrong to say that the high yield is normal for real estate in Japan but such high yield is not normal for real estate in some other countries, countries in which investors would like to get better returns for their money.

Related posts:
Saizen REIT: AGM on 19 Oct 10.
Japanese real estate: Has it bottomed?

7 comments:

Anonymous said...

Just sold away all my saizen never move at all for so many months. Lost out so many good opportunities after seeing my friend earn so much. Decided to put all my savings in genting instead. -Eric

AK71 said...

Hi Eric,

It sounds as if you put all your money in Saizen REIT up till now. That's not what I would have done. Anyway, I hope you make some money in Genting. :)

Anonymous said...

Sometimes I am tempted with the same thoughts as Eric and wonders if i will see a payout and that they are no saddled with some other issues that may pop out later which may cause another nil dividends payout period.

Dividends & it's regular payout are the key reasons that I am into REIT. Had I been more adventurous about +/- of prices, then REITs isn't for me lor.

As they, for a REIT as a whole, looks OK and this loans issue is like a bump on the highway. Perhaps Saizen should consider a rights issue to close off the default loan matter.

They should also start paying dividends and consider doing it quarterly. The loan matter settled, a bit of additional cash from the Rights issue, they should have no issue being more aggressive in the still good-value-freehold Japanese residential market. (i am still envious of their low freehold prices vs SG's)

SnOOpy168

AK71 said...

Hi SnOOpy168,

We can only try our best to do thorough analyses of the companies or trusts we want to invest in.

Question our motivations and invest accordingly.

Stay the course as long as the circumstances have not changed.

Avoid overanalysing and imagining what could be or not be. What's the point? ;)

Anonymous said...

Hey ak71, I did the same thing as Eric, placing most of my families monies into saizen, thinking that the price will appreciate but it didn't quite happen.. A little worried.. Do you think it will improve with more analyst coverage? Bee Kian

AK71 said...

Hi Bee Kian,

I do not think it is wise to put almost all of our money into a single counter. It is too risky even if it were a blue chip company. So, this is something you might want to think about.

As for whether Saizen REIT's unit price would rise in future, with improving fundamentals, I am inclined to believe it would.

However, buying into this REIT would primarily be for future income. Capital gains is a secondary consideration and when it happens, it would be a bonus.

I am not worried because I would be quite pleased with a yield of 6.5% (based on the current price). The fundamentals are much stronger now as well.

If YK Shintoku's issue gets resolved in the next few months, it would represent a bonus and could bump up the DPU and unit price a bit.

Evaluate your motivations and options available and see if investing in Saizen REIT is the thing for you. Good luck. :)

Anonymous said...

Hi Bee Kian

Have you also looked at 1st, LippoMapple and AIM REITs. Personally I do incurr higher brokerage cost per transaction by spreading my fresh fund amoungst a few of my existing counter (topping up). But this way, i dun bet all into 1 counter also.

I dun have a lot of $$$ but still can spread some risk in return for a slightly lower returns (due to higher cost).

SnOOpy168

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