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Saizen REIT: Acquisitions to increase DPU.

Thursday, May 10, 2012

To me, there are only a few important points to note in the REIT's latest presentation:

1. Management is on an acquisition path as this is probably the only way to increase DPU as it seems difficult to bump up occupancy of existing portfolio. Occupancy: 91.6%.

2. Potential dilution of DPU to the tune of 12% as warrants are exercised (if funds thus obtained are not put to productive use).

3. NAV per unit (adjusted for warrants): 29c

4. Gearing (adjusted for warrants): 21%

5. Interest cover ratio: 5.2x

Assuming that the management is able to put funds from the exercising of warrants to good use and push gearing to 35%, we could see DPU improve some 30+% from current levels (in JPY terms) based on the management's guidance.

Remember that all the numbers here are based on the current exchange rate between the JPY and S$. As I believe that Singapore would continue to lean towards a gradual appreciation of the S$ while Japan favours a weakening of the JPY, future DPU could be negatively affected in S$ terms. So, unless valuation becomes very compelling, I am unlikely to add to my remaining long position in the REIT.

See Saizen REIT's 3Q presentation: here.

Related post:
Saizen REIT: 1H FY2012 DPU  of 0.61c.


INVS 2.0 said...

Hi Ak71,

When is the XD?

AK71 said...

Hi INVS 2.0,

Saizen REIT distributes income half yearly. You would have to wait another 3 months. ;)

INVS 2.0 said...

Hi Ak71,

Gosh! Didn't know that...

AK71 said...

Hi INVS 2.0,

Some trusts distribute income quarterly and some do it half yearly. FCOT is another one that does it half yearly. MIIF and KGT too. :)

INVS 2.0 said...

Hi Ak71,

Thanks for the info. I got rid of Saizen at no loss. :) Stocks without quarterly payout is not my cup of tea. :/

AK71 said...

Hi INVS 2.0,

All of us have some criteria to stay invested. As long as it gives you a peace of mind, we should stick to the criteria. :)

Marco said...

At 0.138, do you think it is a good buy now?

AK71 said...

Hi Marco,

Whether it is a good buy is rather subjective. I would ask if the distribution yield at current levels is good enough for you? You would have your answer then. :)

Ray said...

Hi AK,

From your understanding, what sort of scenario may the warrants holder exercise their warrants? when price is high? low?

How are you taking the news of the latest Flitch downgrade of Japan's soverign debt? Do you see Saizen becoming riskier than before?

Assuming Annualized DPU of 1.22c is 8% at current price. That's guaranteed right? I don't quite understand how the Yen depreciating is affecting DPU. Can you enlighten me?

AK71 said...

Hi Ray,

Wah! So many questions. I shall try to answer your questions well. ;)

Warrant holders have to exercise their warrants before the 1st of next month. Otherwise, the warrants become worthless. Excercise price is 9c. As the mother share is now trading at 13.6c or so, I believe that it makes sense to exercise the warrants, without considering how much the warrants were purchased for.

There were some 13 warrants for every 100 units in issue the last I looked. So, we have to expect some 12% dilution to DPU, everything else remaining equal. So, the annualised DPU could become 1.074c. This would be a distribution yield of 7.9% at 13.6c per unit.

Of course, if the managers make use of the funds from warrants exercised to fund yield accretive purchases and to ramp up gearing to 40%, we could see DPU increasing 30% in time. This is on the low side, I believe. So, distribution yield could go to 10.27%, everything remaining equal.

You want to see: Saizen REIT: 1H FY2012 DPU 0.61c.

The downgrading of Japanese sovereign debt really doesn't bother me much. See: Japan's debt issue and Saizen REIT.

Saizen REIT's income distribution is not guaranteed. Its properties are not located in Singapore and does not fall under the rule that it has to distribute 90% of its income. It could suspend income distribution and it did that before in the last crisis.

Saizen REIT's income is in JPY and this is converted to S$ when being distributed to unit holders. So, a weaker JPY against the S$ would mean lower income for us in S$ terms, everything else remaining equal.

Ray said...

Ha ha, yes I have many questions. :)

Thanks for answering all of them.

I didn't know Saizen isn't obligated to pay 90% of its distributable income! I thought being listed on SGX, they had to abide to the same rules. hmm...

AK71 said...

Hi Ray,

Well, you have to be comfortable with the total package. If you don't feel comfortable about certain aspects, you might want to give it a miss. Peace of mind is priceless. :)

zhic0ng said...

How much dividend i can receive if i brought 10 lot of Saizen REIT share? Is the dividend in Yen?

AK71 said...

Hi zhicOng,

Saizen REIT's revenue is in Japanese Yen(JPY). However, we will receive income distributions in S$. So, a strong JPY is good for unitholders. ;)

I estimate Saizen REIT's annual DPU to be about 1.1c, everything being equal, and the distributions take place half yearly.

The next distribution should take place in September. I expect it to be about 0.55c which means $5.50 per lot or $55.00 for 10 lots.

Based on 14.5c per unit, a DPU of 1.1c would mean a distribution yield of 7.58%. If you are comparing this with fixed deposit rates in Singapore, this wins hands down. ;)

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