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Saizen REIT: Properties in Sendai and YK Shintoku.

Sunday, March 13, 2011

The quake that rocked Japan affected the city of Sendai the most. Saizen REIT has 22 properties in that city and we are still awaiting news on the extent of the damage. Here are photos of some of the properties in Sendai taken from Saizen REIT's website :


In a reply to a reader, I mentioned that of the 28 properties possibly affected (3 more each in Koriyama and Morioka), 13 properties are in the portfolio of YK Shintoku. I wonder how this would play out since YK Shintoku is still in default of its CMBS and not contributing to income distributions to unitholders.

If the 13 properties in question were totally destroyed, YK Shintoku's portfolio NAV would lower significantly. In such an instance, perhaps, it would not make much sense to continue trying to pay off the CMBS which is in default. It would make more sense to let YK Shintoku go into foreclosure. After all, Saizen REIT's other investments are ring fenced from YK Shintoku and are doing quite well without any contribution from YK Shintoku.

Of course, I am just raising a hypothetical scenario assuming that all 13 properties concerned were destroyed. A portfolio with a NAV higher than its outstanding loan is worth rescuing but a portfolio with a NAV lower than its outstanding loan should be considered for foreclosure. It is just good business sense, I believe.

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