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Saizen REIT: A special dividend?

Tuesday, November 12, 2013

Argyle Street Management, which holds 8.9% of the REIT, said the REIT had 4.86 billion yen (S$61 m) of cash. That figure amounts to 23.5% of the REIT’s market capitalisation as at 29 October 2013. Argyle wants the REIT’s manager, Japan Residential Assets Manager (JRAM), to consider distributing a significant portion of its cash balance to shareholders through a special dividend.
(Source: The Business Times)


Regular readers know that I like Saizen REIT. I got interested in it during the GFC when it was unloved and I have been blogging about it ever since the early days of ASSI. Some might even say that I know the REIT like a friend. Although friends don't give us money regularly, this one does and if Argyle gets its way, I could be getting a bit more.

What do I think of the proposed special dividend?

Well, if it happens, it is a return of capital. Why do I say this? This is not from higher income or earnings. This is to have excess capital returned to unit holders if the REIT's management is unable to find better use for the money.

Actually, for anyone who has been following developments at the REIT, the management had used the money to buy back units from the open market and made a few DPU accretive purchases as well. I like their cautious approach as they don't seem to be buying buildings indiscriminately. Going on a shopping spree would, of course, fatten their pay checks. It is to their credit that they did not do so.

If a capital reduction exercise should happen, Saizen REIT would have less money on hand for any potential DPU accretive purchases. This means that the management would have to use a blend of equity and debt to fund such purchases in future. So, it would be back to square one for unit holders.

However, I should not complain if I am going to be paid money, should I? Better in my bank account than others' or so some would say.


One reason why I am invested in the REIT is because it is grossly undervalued. Depending on the exchange rate we use for the JPY to S$, the REIT was trading at a 20% to 25% discount for much of  2013.

The warrants exercised in the middle of 2012 strengthened the balance sheet of the REIT considerably. The REIT, already undervalued then by some 40%, was made more so because of that.

So, for those who exercised their Saizen REIT warrants back then, they would be taking back some of their own money if a return of capital should happen.

For those who bought into the REIT at a relatively large discount to valuation and who had no warrants to exercise before they expired, they should be grinning broadly as they would be taking some of other people's money with a margin of safety to boot.

Having said this, special dividend or not, Saizen REIT has been a good investment for me and it is likely to get better in the years ahead if Mr. Abe's policies gain traction.

Related posts:
1. Fukushima and investing in Japanese real estate.
2. Saizen REIT: Risk free rate and unit price.
3. 9M 2013 income from S-REITs and more.

6 comments:

cindy tan said...

hi,
I have not been tracking Saizen but got interested through your post. I saw there's a change in sgx code and price. So, given the current price, is it still good to enter i.e. will I still be getting below its NAV?

Hope you can enlighten me cos with the change in price, I can't really assess its value. Thanks

AK71 said...

Hi Cindy,

Saizen REIT did a 5 to 1 share consolidation recently. So, if you want to find out what is the NAV per unit now, just go to the last financial report and see what was the NAV per unit then and multiply that by 5. Quite easy. Homework for you. ;)

cindy tan said...

Hi,
I read the report with FY ended 30 June. NAV has dropped to 0.25 then, so the current NAV is 1.25. At current price of $0.925, yield is 6.97% ($0.0645 dividend for 2013) and so it's at a discount of 26%.

Am I right? :)

AK71 said...

Hi Cindy,

Looks good and since the exchange rate now is more or less the same as back in June 2013, no adjustment is required. :)

For the DPU, however, I would expect a marginal drop of about 8% due to lower JPY to S$ exchange rate that has been locked in through a hedge.

cindy tan said...

Hi AK71,

Can you explain the implication of
"For the DPU, however, I would expect a marginal drop of about 8% due to lower JPY to S$ exchange rate that has been locked in through a hedge."

Does it mean the yield will drop further (cos dividend is paid in sing dollars) or the price will drop further? Or any other implications to take note before buying?

Thanks!

AK71 said...

Hi Cindy,

It would be a good idea to go in knowing what could happen. You might want to read #2 in "Related Posts" at the end of this blog post, including the comments section.

Hopefully, it will be helpful in your efforts to making a better informed decision. :)

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