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Saizen REIT: TKs.

Sunday, August 30, 2015

When I was a soldier in the Singapore Armed Forces, I learned a Hokkien phrase with the abbreviation "TK". It was one of those inane things that I picked up during those two and a half years that somehow got stuck in my mind. If you don't know what the abbreviation is, here is a hint: It has to do with size and a part of the male anatomy. OK, no more.

Anyway, today, I replied to an email from a reader about TKs. However, these are TKs of a very different nature. These are the TKs of the Japanese business world.

Hi AK,

I am currently trying to understand more about Saizen Reit, a stock that you happen to own. Hence, I would like to ask if you could share with me the structure of the REIT. I was reading their annual report and I could not understand the jargon.

Can you kindly explain about what is the relationship between Saizen and the TK operators because I do not understand who actually owns the properties. Thanks in advance for your help. 

I am a noobie trying to learn more about this Reit and I got confused by its structure.

Warm Regards,
KF




Hi KF,

The TK structure is one way foreigners can invest in Japanese real estate. It is a typical Japanese real estate investment structure, in fact. The TK or Tokumei kumiai is a legally binding contract.

So, when we buy into Saizen REIT, we are buying into a foreign investor that has a stake in these TKs. Saizen REIT has contributed money to the TKs and has the right to share in the profits but Saizen REIT is not allowed to run the TKs. This is why there are TK operators who are actually the local operational managers in Japan.

In case you are wondering, Saizen REIT is entitled to 97% of the profits generated by the TKs.

The investors own the assets in the TK, not the TK operators. Saizen REIT has invested money and they own the assets.

Best wishes,
AK

OK, I think I am going to have some rice and "tau kee" stewed in soya sauce for lunch.


See the TK? ;p



Related posts:
1. Deeply undervalued but is it a BUY for you?
2. Saizen REIT: Still a good investment for income?

2 comments:

caelitus said...

Greetings from the UK! I am a full-time student again. Being overseas makes one yearn for Singapore, its food and efficiency.

I was surprised to see that Saizen started the Distribution Reinvestment Plan. For me, as I do not need the income at this stage, I elected to receive units in lieu of cash. Moreover, the issue price is under its book value. Another entry point without the brokerage charge.

AK71 said...

Hi caelitus,

You are avoiding the very bad haze situation here. Good on you! ;)

Saizen REIT has always traded at a big discount to its book value. So, I don't think that is a compelling reason to accept the DRP.

However, if you would like to increase your investment in the REIT and do not need the income, it could be a good idea to accept the DRP. :)

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