Thanks to its recent acquisitive activities, paying down of its loans and a strong JPY, Saizen REIT is able to declare a higher DPU of 0.63c for 2H FY2012. This is payable on 18 Sep.
Therefore, the expected reduction in DPU of 10+% with the conversion of its warrants did not materialise and Mr. Market has shown his approval in the usual way as unit price of the REIT climbed higher today.
Net gearing: 24%
Interest cover ratio: 6x
NAV/unit: 30c
Annualising the DPU of 0.63c would give us 1.26c or a distribution yield of 7.875% at a unit price of 16c. Everything remaining constant, the DPU is likely to increase as the REIT's management continues to look out for apartment buildings to acquire and pay down its loans which are amortising in nature.
I have mentioned before that if the REIT's loans were not amortising in nature, its DPU could be some 50% higher than it is now.
The management has also indicated it could buy back units from the open market if unit price should be depressed. This would also improve DPU if it should happen.
All in all, I am very pleased with Saizen REIT's results.
With numbers very healthy and operations stable, Saizen REIT is very much undervalued. I believe a 30% discount to NAV/unit is closer to fair value. That would be 21c per unit.
Assuming that there is no new acquisitions from here on and everything else remains constant, at 21c a unit, we would be looking at a distribution yield of 6%. Bearing in mind that this would likely improve in time due to the amortising nature of the REIT's loans, everything else remaining constant, makes Saizen REIT a strong value proposition for anyone investing for income.
Results presentation slides: here.
Related posts:
1. Saizen REIT: Why did I buy and would I buy more?
2. Saizen REIT: Beefing up distributable income.