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Saizen REIT: Still a good investment for income?

Wednesday, August 27, 2014

Saizen REIT is now one of my top 3 investments in S-REITs and in a recent talk, I said the same thing. I also explained why I invested in Saizen REIT and why I quadrupled my long position in the REIT when I did.

Anyway, Saizen REIT's latest presentation is now available for viewing and I have attached the link: here.


DPU: 3.1c.

While I believe that the weakness in the Japanese Yen is likely to continue for many more years, residential properties' occupancy and rental rates should start to pick up in the next couple of years if Abenomics gain even more traction.

Having said this, remember that Saizen REIT is distributing income in an amount that pretends that its loans are non-amortising in nature. What is the effect? Amortisation of loans cost 1.46c per unit which means if the REIT did not have the cash resources to pay for this and if the money were taken from income generated by the REIT's portfolio of properties, only 1.64c would have been available for distribution to unit holders this time.

See related post #1 at the end of this blog post.

NAV/unit: $1.22

In JPY terms, the valuation of properties in the REIT's portfolio seems to be rising and in one of my earlier blog posts, I shared that Saizen REIT's real estate assets could be more undervalued than we think.

See related post #2 at the end of this blog post.



Gearing: 37%.

Although Saizen REIT published their net gearing as 31%, I will take 37% for a more conservative guidance. I also want to remind myself that Saizen REIT uses its cash resources to offset amortisation cost. See earlier point on DPU above.

Weighted Average Loan Interest Rate: Less than 3%.

Debt profile: Earliest loan maturity in 2020.

Unlike most other S-REITs, Saizen REIT is able to secure loans with relatively long tenures which makes a lot of sense since real estate investment is essentially a long term commitment. The inability to refinance when loans mature was a reason why many S-REITs were caught in a bind during the GFC only a few years ago. Some of Saizen REIT's loans actually only mature in years falling in between 2031 to 2044.


Occupancy: 91%

There is still room to bump up income by getting more tenants but this would really depend on whether the Japanese economy improves meaningfully but with plans to allow more foreigners to join the economy, things could start looking up.

See related posts #3 and #4 to hear me talk to myself a bit more about the REIT. For me, Saizen REIT is still a great investment for income.

Related posts:
1. Saizen REIT: Is the DPU sustainable?
2. Undervalued and possibly more so.
3. Rewarding patient investors.
4. Saizen REIT: A foreign talent.

23 comments:

E H said...

What happens when Abe gets voted out and Abenomics is thrown out with the bath water?

Siew Mun said...

Thanks. Your assessment is clear.

AK71 said...

Hi E H,

I don't know about "when". Haha... I don't have a working crystal ball.

But "if" Abe gets thrown out and Abenomics should end, your guess is as good as mine. ;p

Anyway, I have been an investor since before Abe came into power. My motivations for investing in Saizen REIT were pre-Abenomics. For me, Abe is a bonus. ;)

AK71 said...

Hi Siew Mun,

Oops, you overheard? I was just talking to myself as usual. -.-"

Capricon said...

Hmm ... I can understand the old post better now after reading the above and the old post again,

You really read the reports deep and think deep, how can I achieve that ? I always read for surface things such as DPU, up or down of the income/debt/margins/operating cash flows.

AK71 said...

Hi Capricon,

Saizen REIT is like an old friend. I know it quite well. So, analysing it is a little easier for me after so many years. I am sure there are some public listed entities that you know better than I do. :)

We are all better at some things than others. We need to complement each other. We are stronger that way.

So, I appreciate the little reminders from readers sometimes when I do things wrong. I know you know I make mistakes. ;)

WK said...

What about Starhill? Is it a good buy now? They do have malls in Japan too...

AK71 said...

Hi WK,

Well, if you are looking for exposure to Japanese commercial properties, I believe Starhill Global REIT might not be the place to look.

I was an investor in the REIT a few years ago and I remember they were looking to divest their Japanese properties and a quick search revealed that they divested a property in Japan earlier in March this year. Their properties in Japan account for only 3% or so of their revenue.

From an income investing perspective, if we are quite happy with a distribution yield of about 6%, a gearing of 30% and buying at a 15% discount to NAV, then, 80c per unit seems like a fair enough entry price.

jojo said...

Hi AK,
Just want to tell you that your passion for investing (NOT trading!) is infectious and encouraging. Keep up the good work. Spread the passion and knowledge around. With heaps of thanks.

AK71 said...

Hi jojo,

To be honest, I do a bit of trading as well but it is in investing for income that I get more consistent returns.

Thank you very much for the encouragement. :)

ZHANG Zheng said...

Hi AK
Any comments on their strategic review? The results don't seem to give the counter a boost so far. Thank you!

AK71 said...

Hi Zhang Zheng,

The decision not to distribute the cash hoard but to continue looking for properties to acquire is a good one if it could add value for unit holders.

The decision is a bad one if the acquisitions are overpriced.

So, time will tell us if the management are doing a good job.

I don't think the results are exceptionally good. They are more or less expected. :)

Ben said...

Hi AK,

Thanks for your analysis on Saizen REIT. I'm wondering if you have any views on the declining population of Japan and the impact that it would have on property prices and rental yields in Japan. This in my view could possibly have a negative impact on Saizen REIT in the future. What do you think?

"Based on the Health and Welfare ministry estimation released in January 2012, Japan's population will keep declining by about one million people every year in the coming decades, which will leave Japan with a population of 87 million in 2060."
Source: http://en.wikipedia.org/wiki/Demographics_of_Japan

WK said...

What s a good buy now? Please advise...

AK71 said...

Hi Ben,

No one would buy an apartment in Japan in the last 10 years because they could well lose money a couple of years down the road. Deflation was a real issue in Japan for about 2 decades. That's how bad it was.

Much has been said about the demographics in Japan. It is definitely not a new issue. The population would likely continue to shrink if the country had maintained the status quo.

However, the country is not maintaining the status quo. The target inflation rate of 2% per annum is going to drive asset prices higher while lowering the barriers to allow more foreigners to work and stay in Japan will improve demand for real estate.

Already, real estate prices in Japan have risen with the introduction of Abenomics. See:Invest in Japanese real estate.

If Abenomics gain traction and things develop along the trajectory we see now, better times are ahead. :)

AK71 said...

Hi WK,

I am afraid I am not allowed to give advice and I never do. ;)

WK said...

Which reit is worth a buy now?

AK71 said...

Hi WK,

Please refer to my earlier reply to your earlier comment. ;)

WK said...

Croesus or Saizen?

AK71 said...

Hi WK,

If you are wondering, no, I am not buying into either one at current prices.

Capricon said...

In this's edition of The Edge, the REIT manager seems to face some challenges from a substantial shareholder, no wonder Saizen closed down to 88 ct.

Time to accumulate ? ������
But Saizen also facing headwinds from weakening Yen.

AK71 said...

Hi Capricon,

I have yet to read this issue but if price goes lower, it would look more attractive, for sure. :)

Solace said...

I have make a small long position on Saizen at $0.85 recently when it shows some weakness.

Based on history, Saizen had been doing share buy backs at about 17 cts, which translates to about 85 cts after the share consolidation.

headwinds from weakening Yen is a valid concern.

I see 85 cents as a acceptable price for me. Small long.

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