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Saizen REIT: Why did I buy and would I buy more?

Saturday, May 26, 2012


There are so many ways to look at an event.  Some might look at it positively and some might look at it negatively. Some might jump for joy and some might break out in cold sweat.

All of us have imperfect knowledge and what we think is reality very often is enough to push us into action. Of course, what we think is reality might not be reality and those who are eventually proven right might just have been lucky.

What is all this rambling leading to?

The recent weakness in Saizen REIT's unit price has been a source of concern or interest, depending on where we stand. Personally, I am not concerned. I am more interested. I also hope that I know Saizen REIT a bit better than most.

When I last blogged about Saizen REIT, its unit price had declined to 13.6c. That was already a 10% decline from its high of 15c a unit just a few weeks ago. In that blog post, I presented some numbers and asked that interested parties decide for themselves if 13.6c was a good enough entry price.


Well, I added to my long position yesterday at 12.8c to 13.1c a unit. Taking in the dilutive effect of the warrants, buying at these prices would give me distribution yields of 8.24% to 8.44%, all else remaining equal, which I believe to be rather attractive for freehold residential properties in Japan.

Some might even say that buying at these prices is similar to buying right after the triple disasters early last year when the REIT was sold down to 13c a unit. Is the REIT in a situation which is similar to last year's panic? Is a low of 12.7c per unit justified by worsening fundamentals? (This is really a rhetorical question since, often, there would be a mismatch between price and value.)

Well, the warrants outstanding, if fully exercised, would have a 12% dilutive effect on distribution yield, everything else remaining equal. However, the REIT is now without the problem it had with YK Shintoku back in early 2011. The REIT is currently in possession of a much stronger balance sheet and looks set to grow its DPU over time.

So, buying more of Saizen REIT now at 13c a unit has less uncertainty compared to buying at 13c in the aftermath of the triple disasters last year. Less uncertainty perhaps but what about value? Is buying at 13c now the same in value as buying at 13c back then?

The Palms Denenchofu, Tokyo. Acquired on 30 March 2012.
The NAV/unit now, taking into account the dilutive effect of the warrants would be 31c . This value, actually, has not changed since March 2011. Although it is good to know that we would still have the same value of asset backing each unit we purchase, we are really investing for income here and are not after discounted assets per se. What about its DPU?

With gearing, adjusted for warrants, reducing from 28.3% to 21%, the REIT has more resources to increase DPU through yield accretive purchases. Its DPU looks likely to be higher in future than not, all else remaining equal.

Would I buy more? I would continue to accumulate units of Saizen REIT next week if it should trade at 13c per unit or lower.

Related post:
Saizen REIT: To buy or not to buy.

Republished in NextInsight as:
Saizen REIT: Buy more of the REIT or no?

27 comments:

Unknown said...

Hi AK

I paste this from your message....

"There are so many ways to look at an event. Some might look at it positively and some might look at it negatively. Some might jump for joy and some might break out in cold sweat.

All of us have imperfect knowledge and what we think is reality very often is enough to push us into action. Of course, what we think is reality might not be reality and those who are eventually proven right might just have been lucky.

What is all this rambling leading to?"

I know you are refering to Saizen, but this can also be say for the euro debt crises.


what if Greece really defaulted, What will happen to our stock? Of course , we see lower px for all stock.
So now, should we buy, hold or sell. What is the cost of holding and selling.
If we sell and are right, greece defaulted, then we can wait it out to buy cheap to reap more profit later when mkt collapse and bottom later.
But if they did not default, then what is the cost of our losses by selling now?
The question , right now is whether will Greece default???
To hold or the sell, which one will cause us greater losses.

I think to hold will cause us greater losses, because if they default, mkt will collapse very steep and fast like 2008 and 09, but if they did not default, mkt will soar , but not as fast as if the crises is solve once and for all.

Since, i think the cost is greater if i stay, i will sell at losses first and side line and watch, till after the election, better than to stay and go down with the stock till rot bottem like 2008.

Just my opinion, not a call or anything else, just state here so hope you can share with me your opinion. Hope you can reply asap.
Thanks,

victor

AK71 said...

Hi Victor,

To anyone, his perception is his reality. Perceptions differ from person to person. So, reality for each person is different. ;)

There are people who feel that the eurozone will make sure Greece stays and not leave because the lenders have too much at stake. So, they want Greece to stay not because they are altruistic but because they are self serving.

Whatever the case, there is no way I can tell you how things would turn out in the next few weeks. Sell or buy, we make our own decisions and will have to live with the consequences. :)

Ray said...

TA wise, chart is pose for a reversal with a hammer with very long tail.

FA wise, Dow dropped again with concerns with Spain and Greece.

VK said...

Hi AK71,

I bought the units yesterday to average my earlier purchases done at around 16.5cents. Also, I think the the units were dumped yesterday because it was the last day of trading the warrants. I don't think it is down because of the dilution worries. I will also buy more tomorrow if it opens around 13c.

Cheers
VK

VK said...

Hi AK71,

I also bought yesterday to average down my earlier purchases done at around 17c. In my view, the stock went down solely due to warrants expiring yesterday and not due to dilution. I will also buy more tomorrow if it opens around 13c.

Cheers,
VK

VK said...

Hi Ak71,

I fully agree with you. I also bought yesterday and will buy some more tomorrow if it opens around 13c. I averaged down my earlier purchases done at 17c by buying yesterday at 12.9c.

Cheers

JW said...

I was considering a purchase too... But I bought SingPost at $1 first :x

AK71 said...

Hi Ray,

That is the technical signal. Will see if we have confirmation tomorrow. In this instance, I am actually hoping for the signal to fail as I would like to buy more on weakness. ;p

AK71 said...

Hi VK,

Well, whatever the reason for the heavy selling by Mr. Market, I am happy to buy more at prices I perceive as cheap. :)

AK71 said...

Hi JW,

We are both long time investors of Saizen REIT. This REIT has been through some rough waters. If it stays unloved, it would present opportunities for bargain hunters. ;)

lzyData said...

Wow, a strong move up today to 13.5c. Looks like you have some influence :P

AK71 said...

Hi IzyData,

I cannot believe that it has anything to do with me. ;)

vulcanj said...

Interesting. Saizen just announced that they are seeking shareholders’ approval for share buybacks. Aside from providing price support to the share, more importantly, it is an indication that they see more ‘value’ in using their cash to carry out share buyback rather than for acquisitions. This is a positive signal.

In any case, all should note that they are only seeking a mandate for share buyback… However, like many other companies, they may not even buy a single share if price is not right.

AK71 said...

Hi vulcanj,

I like this move too. If the REIT is unable to find better use for the funds amassed, buying back its units in the open market would be the natural thing to do.

This will increase unitholder value, maximising returns for unitholders. Surely, Mr. Market has discounted Saizen REIT's units too deeply. ;)

INVS 2.0 said...

Hi Ak71,

If I am not wrong, 16 June there is a meeting within Eurozone countries to decide whether Greece wants to stay or leave? If leave, we might see another market shock again. :)

AK71 said...

Hi INVS 2.0,

Well, if there should be another round of selling, it would be a good opportunity to accumulate more on the cheap. I definitely want to buy more units of Saizen REIT if it should go under 13c once more. ;)

INVS 2.0 said...

Hi Ak71,

Btw, my ChartNexus can't update by itself since May 25? What should I do? :(

INVS 2.0 said...

...continued

Done. Apparently my version is the old one. ChartNexus told me to manually reinstall with ver 3.3.7 from their web. :)

AK71 said...

Hi INVS 2.0,

That is good news. Thanks for sharing the information. :)

Alexis Low Jia Ying said...

Interestingly, there is still 110,810,215 Saizen warrants not exercised on 31 May 2012. There is only one more day.......

AK71 said...

Hi Alexis,

Thanks for that bit of information. If the holders should fail to exercise their warrants, I guess the amount of dilution would be lesser. :)

Alexis Low Jia Ying said...

More than 88m warrants converted within the last 2 days. Only 22m warrant expired....

AK71 said...

Hi Alexis,

Thanks for sharing this. :)

Saizen REIT has a much bigger war chest now.

r said...

Hi AK,

I have started reading your blog and find it to be really interesting to follow and easy to understand.

Sometimes you do add in your daily life ongoings and its not so much as in just purely financial or investment stuffs. Adding a light touch to the whole thing.

For me, i did buy into saizen looking at the cost that time and like what you said was a calculated risk. As i was not much cash rich that time, i only bought into a few lots. However is it advisable whether to buy in and accumulate more since i am able to average up now?

AK71 said...

Hi r,

This is really a personal blog and not just a personal finance blog. So, I just blog about anything I want to. :)

With regards to Saizen REIT, I would say that the margin of safety is very much reduced now. Of course, it does not mean that unit price cannot go higher from here but if you do buy more, you must do it with the knowledge of the risk you are going to take on.

ken ken said...

Hi AK

Are you think Saizan REIT 0.186 is the right price to enter?

AK71 said...

Hi ken ken,

As I already have a significant exposure to Saizen REIT, I won't be adding to my long position.

It is currently trading at a 20% discount to NAV. It has a gearing level of 39%. Conservatively, it has a distribution yield of 5.35%.

The question to ask is whether you are happy with the numbers. :)

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