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Saizen REIT: Update and sale of Johnan Building III.

Wednesday, March 23, 2011

We have more good news for Saizen REIT.  Firstly, Royal Hills Katagiri, which is located in Sendai, was viewed by the property manager today and was reported to be intact. This was the last of the 28 buildings which were reported as potentially affected by the earthquake and tsunami. "In the areas affected by the earthquake and tsunami, all 28 properties in Sendai, Morioka and Koriyama appear to have sustained only minor damage." Read announcement here.

Johnan Building III
Separately, the manager of the REIT reported the sale of another building today and this is really good news because it shows that investors' interest in Japanese residential properties is still very strong. This is especially remarkable given the recent disasters which shook the country.

The property divested is Johnan Building III. This is located in Fukuoka and is from the property portfolio of YK Shintoku. It was built in June 1983 and comprises 24 residential units, 6 commercial units and 21 car parking lots.

The property was sold to an independent private investor for a cash consideration of JPY 312,577,516 (S$4.9 million).  This was at a 0.5% discount to the property's valuation of JPY 314 million. Read announcement here.

Good news all round for Saizen REIT and we should see the REIT's unit price recovering gradually although to recover to the pre-crisis high of 18c could be difficult. Psychologically, there would be a shadow of doubt in the minds of investors. Although I have little doubt that gap close at 15c would happen, I believe that it might not be easy going beyond and that 15.5c and 16c would be formidable resistance levels.

Fundamentally, there would be some repair costs to contend with. It is also reasonable to assume that there could be some downward pressure when it comes to rental income for contracts which are up for renewal if the Japanese economy suffers a setback from the triple disaster. The Japanese Yen could stay strong in the short term but the longer term picture is clouded as the massive injection of liquidity by the Bank of Japan could weaken the Yen in time.

After taking into consideration the gloomier technical and fundamental pictures, it is still truly a relief that my worst case scenario of a total loss of the 28 buildings did not come to pass. Of course, the development at the Fukushima power plant needs monitoring as a meltdown which seems less likely with the passing of each day could impact the 3 buildings in Koriyama which are less than 60km away.

It could be too early to pop the champagne but the worst does seem to be over.

4 comments:

WK said...

will the rental contributions continue on those affected buildings? if not then thats bad news...

AK71 said...

Hi WK,

The manager reported that none of the 28 buildings was vacated. So, the assumption is that rental income is not affected adversely at this point in time.

Of course, the situation remains fluid since developments at the Fukushima nuclear power plant could impact some of the 28 buildings due to their proximity.

KS said...

Just thought i share this with you..was wondering whether to buy more saizen reit because of the big discount to NAV...did a search to see whether this is the norm for other japanese residential reit (there are 4 residential reit listed in Japan after merger).

FOund this:-
http://www.stbri.co.jp/english/market/pdf/constituents_e.pdf

http://www.adr-reit.com/en/

http://www.adr-reit.com/file.html?path=24-7293-c010-445074ca1a41bc23a4&name=2010AutumnIR+-+3.pdf

http://www.nre-rf.co.jp/site/file/tmp-zSJpD.pdf

Hmm...i think both Advance residence reit & Nomura reit trade at a premium if my calculation is correct

But Japan Rental is tradng at big discount:-
http://www.jrhi.co.jp/eng/cms/doc/20110107_124804ptCk.pdf

OK abit late, will analyse this again...

AK71 said...

Hi KS,

Saizen REIT remains a value proposition. I have written so much about the REIT including the latest analyses with the worst case scenario of a total loss of 28 buildings as well.

Which way would its unit price go in future? I think it should do a gap cover in time at 15c. When? I do not know. Could it weaken to retest its recent low of 12.5c? It could and I might buy more then. :)

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