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Saizen REIT: Hold or sell as insider buying continues?

Thursday, March 17, 2011

On 15 March, Argyle Street Management Limited, a substantial shareholder of Saizen REIT, increased its holdings from 15.036 % to 15.201% or an increase of 1,942,000 units. Average price per unit: 13.06c. This is their second open market purchase two days in a row. Announcement here.

On 16 March, Starich Resources Limited, bought 1,000,000 Saizen REIT warrants. Read announcement here.

The continual purchases by insiders reinforce my own perception that at 13c/unit, we are pretty close to the floor, if not the bottom. In the worst case scenario, a total loss of the 28 buildings in the affected areas should limit losses to NAV and DPU to 15%. In fact, losses to the DPU could be lower as almost half of the 28 buildings in question belong to YK Shintoku which is not making any contribution to income distribution.

However, we have to bear in mind that the REIT would have to incur repair costs to the affected buildings even though the damages are seen to be minor so far. Given the healthy cash holdings the REIT has now, I do not foresee any problem with its ability to pay for the repair work unless it should run into tens of millions of dollars. So, there is no need for the REIT to seek extra cash from unitholders.

The one thing that could go wrong now is the situation at the Fukushima nuclear power plant. If the reactors or the spent fuel should suffer a complete meltdown, we could possibly see the current 30km evacuation zone widen.  I read somewhere that the USA suggested an 80km evacuation zone and this would mean the 3 buildings in Koriyama would have to be abandoned since those are within 60km of the nuclear power plant.

There is hope that things would improve: "Engineers were focusing their efforts on restoring the power supply to a quake-damaged nuclear plant in an attempt to reactivate its cooling system and avert a meltdown." Read article here.

I have many people asking me whether to sell or to hold. I cannot provide advisory but my own preference is to hold because I think we are pretty much near the bottom. I like to sell at resistance and not at supports, if I can help it. Of course, there is no guarantee that I am right. So, if you feel like selling and if that would give you a peace of mind, why not?

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Raelynn said...

my mom had transferred a few lots of an STI component stock to me, and the dividends declared last year is able to offset half the cost price of my purchase of saizen.. (my holdings in saizen are small la~) so i'm not too concerned about selling them in panic now.. will continue to hold them for now too.

i keep thinking about the memory effect that you always mention about AK, whether this is will drive me away from stocks and reits which consists of japanese portfolios.

AK71 said...

Hi Raelynn,

Memory can be a good thing and it can be a bad thing.

We are likely to remember extreme pain and extreme joy very well. Other stuff, human memory is rather unreliable.

As long as we maintain a rational mind, we should be OK in the longer term. Of course, there would be times when staying rational looks stupid because the market is irrational.

Technically, the market is very weak. Do we add to our positions in fundamentally strong stocks? If we respect market sentiments, we might want to wait a bit for things to bottom out before buying more.

However, we could miss the bottom. So, what are we to do? Hedge. Buy some as prices decline. That's what I have done with AIMS AMP Capital Industrial REIT and Cache Logistics Trust lately. I might also do the same with Sabana REIT. :)

Anonymous said...

I am pessemistic about nuclear situation.
Chances are there will be continuing low leakage for a long time and this will affect value of properties around the area. Even if no official blockage to use of the area, rentals will drop.
However, that is my own and probably majority opinion.
But sometimes, contarians win big by going against the majority.

AK71 said...

Hi Anonymous,

I am not a scientist or engineer. I am just your average investor who looks at numbers (amongst othes things) and tries to make sense of things.

I have been described as a contrarian before and that includes my decision to invest in Saizen REIT in 2009.

It is very unfortunate that Japan should have a triple disaster of earthquake, tsunami and nuclear power plant trouble. It is also unfortunate that 28 of Saizen REIT's properties are in the affected areas.

I agree with you that the properties in the affected areas will probably see a loss of NAV and income. This is why I believe that the worst case scenario I have considered which is the total loss of NAV and income standing at 15% of current values more than covers what would happen in reality. It stands to reason.

Of course, many bad things happen which are not reasonable. So, although I have done my analysis, I can only hope for the best.

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

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