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Saizen REIT: 1H FY2012 DPU of 0.61c.

Friday, February 10, 2012

The strong JPY is a boon for Saizen REIT unitholders as it lifted distributable income in S$ terms as well as the NAV per unit.

A DPU of 0.61c has been declared for 1H FY2012 and is payable on 6 March 2012. At a unit price of 15c, this represents an annualised distribution yield of 8.1% which is not bad at all.

NAV per unit stands at 35c.

I continue to like the fact that Saizen REIT owns freehold residential properties in a country which sees a majority of its population renting the homes they stay in.

A continuing decline in rental reversions although small hints at a weak housing market and keeping the status quo, the only way DPU could grow is through cost cutting and a continuing appreciation of the JPY.

However, the management is unlikely to keep the status quo and Saizen REIT could potentially increase DPU through acquisitions using debt and internal resources. With a stronger balance sheet, it is capable of this.

Of course, we have to remember that, as of 31 December 2011, there were still 17 warrants yet to be exercised for every 100 units in issue. Once all the warrants are exercised, we have to expect a proportional drop in DPU, everything else remaining equal.

As of 31 December 2011, gearing stands at 31.33% taking into consideration cash on hand. Against the value of its investment properties alone, gearing would be 37.64%. With more warrants yet to be exercised, Saizen REIT could keep gearing level low and have the internal resources to fund a few more acquistions.

See announcement: here.

Related post:
Saizen REIT: Acquisitions and long term loans.


Ray said...

Hi AK,

Seem like Saizen's price never recovered since the 2009 recession.
In fact, the same can be said of Japan's economy.

From a TA standpoint, I also dont see good enough volume.

Sorry if im a wet blanket. :(

My 0.02

goldmansion said...

You mentioned, in Japan a majority of her population rent homes.
any ideas why?
is it because Japan is earthquake prone? or is it Japanese prefer to rent to free up cash flow?
I believe if a war break out between Israel and Iran, the Yen might soar but equities worldwide would be hit.
I too have Saizen reit since her IPO days.
from Goldmansion.

AK71 said...

Hi Ray,

Not a wet blanket at all. You have stated facts.

However, if the disasters did not take place, with its successful repayment of YK Shintoku's loan shortly afterwards, we could have seen its unit price somewhat higher. Price is really sentiment driven mostly.

Anyway, subsequently, I divested a large part of my investment in the REIT as its unit price rebounded from oversold levels and I also blogged about it.

Sanity prevails with more good news.

Investing in Saizen REIT like any other REIT should primarily be for income. Definitely not enough volume to make TA reliable or trader friendly. ;)

AK71 said...

Hi Goldmansion,

The Japanese fear buying real estate in their country.

In a country where real estate has been declining in value for 20 years, there is a real fear of wealth destruction buying a piece of real estate.

I blogged about it before too:

Buy Japanese real estate.

Ray said...

I heard that Jap real estates depreciate unlike Singapore and HK. This is probably why most pple rent esp when they also work at Tokyo and buying houses there isn't practical.

Alexis Low Jia Ying said...

Just for your info....Morgan Stanley has been selling Saizen for the last 2 months. First the unit (from 0.148 to 0.138) and then the warrant to all the way down to 0.048. They were selling by the millions everyday. The price only managed to recover slightly the day after they finished selling the last of their warrants (hopefully last).

AK71 said...

Hi Ray,

Yes, exactly. :)

However, I can't help but wonder if it would recover. With rental yields as high as 15% or so, there was some increase in interest from investors prior to the triple disasters in March last year.

AK71 said...

Hi Alexis,

Thanks for sharing this. :)

There could be a better time to accumulate units of Saizen REIT.

Ray said...


you really wanna go against a BB like Morgan Stanley?

AK71 said...

Hi Ray,

Wah, you make it sound so scary. Hahaha...

I do what I feel is right. ;)

Ray said...

haha, you're the man!

I'm wuss! :D
Will sit this one out!

AK71 said...

Hi Ray,

Just do what you feel comfortable doing or not doing. Peace of mind is priceless. ;)

SnOOpy168 said...

I have only transited thru Narita twice in my lifetime. But from Japan Hour and all, I think it is a nice place to be.

Part of me says "diversify" and Saizen makes sense as it is in residential & in Japan. Plus freehold.

Part of me says - "break even & take the $$ to the likes to FR, AIMS or s-banana for higher yield". But thats will be mostly in SG and Indo.

Wonder how I am to make sense of this cross road ?

AK71 said...

Hi SnOOpy168,

Japan is a beautiful country. I was visiting Japan more regularly when the JPY was much cheaper. This reminds me, I must try to update my travel blog again soon. Haha.. I have been lazy.

As for whether you should invest in Saizen REIT, I believe I have blogged extensively about Japan's residential real estate, its economy and the REIT itself. You have to do your own due diligence and decide. Good luck. :)

Ray said...

Recently after XD, saizen dropped quite abit. I decided to go in for a very tiny stake. If it goes further weaker, I might load further.

I realized saizen has potential to be both a dividend generator cum a multi bagger since japan economy is at an all time low ever since WWII. So what better time to buy saizen than now? ;)

AK71 said...

Hi Ray,

To invest in Japan is to think like a contrarian.

I think Saizen REIT is very undervalued if we look at its NAV/unit (even taking into consideration all the outstanding warrants).

Demand for housing is relatively inelastic, especially in a country which sees two thirds of its population renting instead of owning homes.

Saizen REIT should be a stable passive income generator for the next few years at least.

Evidence shows that the rapidly ageing population of Japan will start drawing down their savings in another 10 years or so. Japan would not be able to borrow domestically as easily as before. Things will change and how will the changes impact the residential market in the country? I have some ideas but it is early days yet.

krunch said...

It is true that organic growth (in the sense of housing rentals etc) in Saizen is unlikely but you may have missed 2 things:

First, Saizen Reit has 6+ billion yen of as yet uncommitted cash. This could yield (by my estimate) an additional 0.4 to 0.5 cents per share per year (fully diluted), if all is invested into property. They've made a start with their Tokyo property purchase.

Second, Saizen Reit has not been paying out all of its operating cashflow as dividends, as it uses some of that cashflow to pay down loans. Therefore the current yield is not directly comparable with other reits that do not pay down their loan principal.

AK71 said...

Hi krunch,

Yes, I have made mention of both points you raised before.

In this post, I mentioned that the management is likely to grow DPU through acquisitions and with a stronger balance sheet, it would be able to do so using internal resources.

In earlier posts, I also mentioned that its loans are amortising in nature which would lead to lower cost of debt in time. This should translate into higher DPU, everything else remaining equal.

With Saizen REIT, however, the strength of the JPY is also an important factor in determining the DPU which is in S$. The JPY has been weakening against the S$ with gusto in recent weeks.

If it should decline to $13 to JPY1,000 which was the level a few years ago, it would mean a decline of almost 20% in DPU in S$ terms, all else remaining equal.

Any income accretion in JPY terms could be reduced or wiped out due to forex consideration. This risk is not an unthinkable one.

Marco said...

The property price in Japan is depreciating is one issue, and I am more interested to know the rental rate trend.

Do you know if the rental rate in Japan is trending flat, up or down?

AK71 said...

Hi Marco,

Rents have come down as well but by a smaller percentage compared to the decline in property prices. So, you can imagine, rental yields have been rising.

You might be interested in this blog post and the graph towards the end:

Buy Japanese real estate.

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