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Saizen REIT: Attracting some big money?

Tuesday, January 18, 2011

Some big player seems to have taken an interest in Saizen REIT today. In a single transaction, 1.5m units were bought up at 17.5c per unit while 2.418m warrants were bought up at 8.5c each, setting the tone for the rest of the session.

I have some friends and readers who asked me if it is too late to go long on this REIT. Well, I might not be the best person to ask because I have been vested in this REIT for more than a year and at unit prices 16.5c and lower that I do not feel inclined to add to my long position at the current prices. However, I will try to be objective here.


The 100dMA continues to rise towards the 200dMA and seems on track to forming a true golden cross in time. The MACD continues to rise above the signal line in positive territory. OBV shows continual accumulation. The RSI is overbought but the MFI is not. This suggests that price has moved up too quickly but overall demand is still moderate. The upmove in price has not been accompanied by any crazy expansion in volume which suggests that a sharp pullback is unlikely.

The uptrend that started on 17 Dec is still strong. The rising 20dMA, in fact, approximates the trendline support. So, it is my opinion that this trendline support should be a strong one. As accumulating at supports in an uptrend is the thing to do, for anyone who wants to go long here, such a support is to be found at 17c in the near term.

For anyone who is thinking of selling into strength, the high of 14 Jan 2010 should be the resistance to watch. Selling at resistance is conventional wisdom. Of course, if resistance should break, more upside is likely and resistance could become support. When in doubt, hedge. Sell a portion, big or small is up to you and keep the rest, just in case.

Fundamentally, I believe the fair value of this REIT is closer to 19c and, if YK Shintoku's CMBS were to be successfully refinanced, the fair value would be closer to 20c.  These values assume that the warrants are fully exercised and they are what I think the REIT is worth. What Mr. Market thinks could be quite different.

Related post:
Saizen REIT: Golden crosses.
Saizen REIT: Steady.
Email exchange with a reader on some REITs.

6 comments:

Peta said...

Hi AK

"The upmove in price has not been accompanied by any crazy expansion in volume which suggests that a sharp pullback is unlikely."
I am of the thought that upward move in price with volume expansion is good? While upward move in price with low volume is negative divergence?

AK71 said...

Hi Peta,

In this case, observing the moderate volume, I was not making a statement about possible strengthening of price but whether there could be a sharp correction which could happen if a high volume upmove comes to an abrupt end. :)

Anonymous said...

Hi AK71

I read your post with interest. I've been tracking this share since end 2008 & it has remained at this price level since 2009; worst still, this reit doesn't pay out dividend until only recently @$0.0026 per share! Watching this share is akin to watching grass grow even for a long term investor, i reckon! Besides reading from charts (which i must admit i'm totally ignorant about), why would any one want to park their hard earned money here? Or is there something that i missed?
Kindly enlighten. Thank you.

AK71 said...

Hi Anonymous,

I only took an interest in Saizen REIT in October 2009 and bought in at 13c/unit, recognising that it was undervalued. That was many months after the rights issue and Saizen REIT's numbers have since strengthened.

I kept buying: 13.5c, 14c, 14.5c, 15c, 15.5c, 16c and even 16.5c. Saizen REIT has resumed income distribution and this is going to continue. Their numbers will continue to strengthen as all CMBS have been replaced by amortising loans with the exception of the CMBS for YK Shintoku which remains in default.

You might want to read the following blog posts:

Saizen REIT: AGM on 19 Oct 10.

Saizen REIT: 1Q FY2011 results.

Could you include your name or initials in future comments? Thanks.

LT Saizen Investor said...

Hi

Not sure whether my earlier post went thru or not as i receive a error msg...anyway i send again

i would like to share my view wrt the question raised on the merits of investing in Saizen.

I invested in Saizen early last year and continue to accumulate this share throughout 2010 and even early Jan 2011. It is now the largest investment in my portfolio.

WHY?

Valuation. Saizen at 0.175 is trading at a huge discount to NAV. Based on latest available info, NAV is 0.36 so the stock is trading at 51% discount to NAV...would you be interested in buying an apartment at 51% discount? Even when all warrants are converted, Saizen will still be at 45% discount to NAV.

Question is when will the Saizen move up closer towards its NAV? I believe the reason for its huge discount is due to:-
(1) Dividend
(2) Default of YK Shintoku loan

(1) Dividend payment was suspended for quite some time and when it was resumed last quarter, the absolute amount was not that great. However, if u look closer, the dividend payment was based on 2 mths of cashflow and exclude cashflow relating to Shintoku portfolio (21% of total asset). If u do a simple prorate to 12 mths, div yield is 8.9% at price of 0.175 excluding Shintoku cashflow (and Shintoku seem to be generating positive cashflow even with the high default interest rate of 7.1%). Of course, Saizen may not pay out 100% of distributable cashflow but this is an indication of their ability to pay 8.9% yield and definitely higher with Shintoku cashflow included at normal interest rate of 3.1% to 3.8% (which is the rate Saizen is paying for their other loans). Remember we only just have 1 qtr of dividend(based on 2 mths cashflow)...if saizen announce good dividend in the coming anouncement, price may move up as investor has more confidence in the ability of the trust to pay stable regular dividend. As mentioned, the yield is potentially high with the inclusion of YK Shintoku asset which is quite significant at 21% of total asset.

(2)Default of YK Shintoku
In my opinion, this has been the single most significant factor holding back Saizen. Saizen has been divesting assets under YK Shintoku to faciliate the refinancing (noted that the 11 properties divested in Yr 2010 was at ave 4.1% discount to NAV vs Saizen trading at 51% discount!). What i don't understand is why Saizen do not make use of the unencumbered properties of JPY 12 billion which are available as collateral for new loans. This together with Shintoku assets can easily cover Shintoku outstanding balance. Maybe the manager is being prudent to reserve those as funds for future acquisitions in Tokyo (which they mentioned in their AGM presentation) and wanted to use Shintoku assets alone to refinance the outstanding loan. I believe once this Shintoku debt is settled, the stock will definitely move up as it is simply too attractive at current valuation.

As a side note, i wonder why the divestment had stopped (the 11 divestments in Yr 2010 was in Sept, Oct and Nov). Could this be a signal that the outstanding debt is acceptable to lenders and no further divestment is necessary? Ofcourse this is pure speculation on my part.

Anyway, this Shintoku issue can be settled either thru loans from current unencumbered properties, throught the refinancing efforts via divestment or even from warrant proceeds...warrant receipts based on available info is S$14.6m and potential future warrant receipts is S$30.2m (total S$44.8m) which can help to cover part of the total outstanding loan of $76.7m or even a combination of all 3.

With Saizen starting to pay good dividends, i can afford to sit back and wait for the price to move up to its true valuation which i believe will happen soon once investors realise that Saizen is paying high dividend and with the coming rsolution of the Shintoku. issue.

AK71 said...

Hi LT Saizen Investor,

For some reason, your comment ended up in the SPAM folder. Lucky I checked and rescued it. :)

Thanks for sharing your point of view and I do agree that successfully refinancing YK Shintoku's CMBS would be a big positive catalyst which could bump up Saizen REIT's unit price. We can only wait and see, for now.

Oh yes, Saizen REIT is also the largest investment in my portfolio. ;)

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