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Saizen REIT: Net offer price of $1.172 per unit by Lone Star.

Saturday, October 31, 2015

The news is out.


Purchaser is Triangle TMK which is a Japanese affiliate of Lone Star Real Estate Fund IV and Lone Star Funds. The Purchase Consideration is at a 3.4% premium to the appraised value of the Properties.
 
The Purchase Consideration is estimated to translate into an implied net offer price of S$1.172 per unit of Saizen REIT (“Unit”), or a slight premium to Saizen REIT’s adjusted net asset value (“NAV”) per Unit.


The Proposed Transaction is conditional upon, among others, approval from Unitholders at an extraordinary general meeting of Saizen REIT to be convened and is expected to be completed in the first quarter of 2016 and no later than 31 March 2016 or such other date as the parties may agree in writing.
 
See press release: here.

So, new shareholders who bought into Saizen REIT even at 92c or 93c a unit in the days before the trading halt yesterday would be in for a nice windfall too.

To be quite honest, I am pleasantly surprised because I was expecting an offer that is, perhaps, at a 5% or even 10% discount to NAV which means a price of $1.03 to $1.08 per unit.


I was being realistic because it is much more difficult to find a buyer who is able to buy the entire portfolio of more than 130 buildings at one go compared to selling one building at a time.





$1.17 a unit exceeds my expectation and I am in favour of the sale although I will miss having Saizen REIT in my portfolio. I have had it for so long and it has been good to me as a stable and meaningful income generator in the last few years.

Now, I notice some who are saying that Saizen REIT provides a good lesson on investing in REITs and that if we buy a REIT at a big discount to NAV, we are safe. This is not 100% accurate and, in fact, it could be a dangerous belief.

I did not buy into Saizen REIT just because it was trading at a huge discount to NAV but because the NAV was also realistic. This was just one of the many considerations I had. There were also other reasons which made Saizen REIT a great investment to me.

Interested readers might want to read my past blog posts on Saizen REIT and why I was so convinced that Saizen REIT was a fantastic investment. (Use the "Search ASSI" feature at the top of my blog.)

Now, with Saizen REIT set to be delisted, I will see my cash position swell as it is one of my 3 largest investments in S-REITs and accounts for slightly more than 20% of my passive income from S-REITs.

For me, it will be like getting 17 income distributions all at once which is better than getting them over a period of 8.5 years, for sure.

A dollar today is better than a dollar sometime in the future.

This is a good outcome and I must not be sentimental.

Congratulations to all my fellow shareholders who got in at the right time and held on till today.

Huat ah!

(Read comment made on 2 Nov 15 at 6.09 pm below.)

Related posts:
1. Possible delisting of Saizen REIT.
2. Saizen REIT: Deeply undervalued.
3. Saizen REIT: Sell the entire portfolio?

46 comments:

Siew Mun said...

AK, will Saizen be giving out DPU for the period Jun-Dec 2015 given that the deal will likely to close 1Q 2016?

AK71 said...

Hi Siew Mun,

I believe the REIT should distribute income at least one more time. ;)

Amos TEO said...

Hi AK

Are there any related costs which will reduce the 117cents?

AK71 said...

Hi Amos,

From the Press Release, it seems like $1.172 per unit is net which means after all costs have been taken into consideration.

jalan Jalan said...

so happy to have made a little coffee money. i wouldn't have made it even I have not found this website.

thanks AK! ;)

talesteller said...

I only have a small position (should have bought more!!) but this spate of delistings is worrying, I'm not sure what to buy to replace this and LMIR in my portfolio.

Amosteo said...

Thanks for the reply, AK.
It looks like it will become a cash company and how it is going to distribute its proceeds is still relatively unknown?

Amos

Ying said...

Hi Ak,

I am new follower of your blog, I just purchased Saizen last week. Is it possible to buy more in shares on monday as transaction was halt on last friday?

Ying said...

Hi Ak,

I am a new follower of your blog and recently just bought Saizen. So could I still buy Saizen when market open on monday? As transaction halt on last friday?

Howard said...

Congrats AK and all other Saizen believers! I missed it but oh well, what's not yours will never be yours :)

tcc said...

Dear AK:

With the recent announcement by the Lippo group on listing REITS back in Indonesia, how will it affect First Reit and LMRT ?

Thanks.

tcc

Wei Jian said...

I get the impression a special dividend will be declared and then Saizen becomes shell with cash.

Doesn't this mean that if i wish to "accept the offer", i need to sell now at/at least $1.17 to the market?

Haven't gone through something like that in my short time with the market. Thanks AK in advance for sharing.

AK71 said...

Hi jalan jalan,

You heard me talking to myself and you took action?

Then, the credit is all yours. ;)

AK71 said...

Hi talesteller,

I am sure there will be plenty of good investment opportunities in the future. ;)

AK71 said...

Hi Amos,

I believe the logical thing for Saizen REIT to do is to delist.

It is a REIT and not an investment holding company.

A REIT without any property cannot continue to exist. At least I don't think so.

AK71 said...

Hi Ying,

Welcome to my blog. :)

Once the trading halt is lifted, regular trading will resume.

You could buy more then if you like but I am quite sure the asking price will be much higher.

AK71 said...

Hi Howard,

Very philosophical. That is a good way to stay sane. ;)

AK71 said...

Hi tcc,

I am waiting for more details on how such a shift is going to be carried out.

At the moment, your guess is as good as mine. -.-"

AK71 said...

Hi Wei Jian,

I don't think that is what is going to happen.

Well, at least that is not the impression I got. ;p

AK71 said...

Time certainly flies.
I first wrote about Saizen REIT in Seeking Alpha in 2010:
AK's articles on Saizen REIT in Seeking Alpha.

Growing old and nostalgic. -.-"

Casey said...

Hi Ak,

What are you going to do with the cash? Saizen is my second largest investment too, I am thinking of adding my existing position in:
1. Sembcorp ind- own its mostly under valued utilities at the existing NAV (most of its divestments come with impressive capita gain)
2. Accordia Golf - for its great cash dividend, jpy currency.
3. OCBC - slow but steady counter at near NAV, I still think that its asset are mostly under valued.
4. IReit - great cash flow, diversify into Euro currency

What is your take? Or you have other counter in your radar? CRT, MPM, M1, OUE?

Hope that you can share your thought? Many thanks.

Casey

Mum4mygals said...

Hi AK, I wish to write a big thank you to you!! Saizen opened my eyes about the concept of 'Value'.. Your writings and sharings in your blog are exceptional..I really learn a lot.. Thank you

AK71 said...

Hi Casey,

Congratulations! :)

I already have a position in SCI and unless its share price declines more from here, it is unlikely that I would add given the fog surrounding SMM's prospects.

Accordia Golf Trust, I have been adding but I wouldn't want it to become too big that I might lose sleep. I think my investment is already quite significant now. If its price should decline more, I could buy more, of course.

IREIT Global, I bought some not too long ago. Looking forward to receiving my first distribution from the REIT. I could add more if its price should come down. Since my position in the REIT is quite modest. I could add a lot more but I want to be careful because its gearing level is relatively high.

I have plans for all the stocks and REITs in my portfolio and after the mini crash in the stock market in late August, I was much more invested than before. So, I am mainly back to cash accumulation mode.

Mr. Market could go into another depression. I think it is OK for me to hold more cash till then. :)

AK71 said...

Hi M4MG,

I am glad that you have found my blog helpful. :)

Now, it is your turn to educate your friends and family on 'value'. ;)

My blog has only so much reach and if all my readers could in turn educate their friends and family, many more will know how to make better financial decisions in life and also avoid scams and con jobs. :)

everydaypengs said...

Huat ah!
Time to find somewhere else to put that money...!

edwin said...

AK, you are Awesome! Thanks for the Tips, i went to BFP course before and read your blog and decided Saizen is good enough.

BTW, i have some question, do i have to offload before it's Delist or i just wait for the delist?

AK71 said...

Hi EDP,

I am sure other opportunities will manifest themselves in future. ;)

AK71 said...

Hi Edwin,

Alamak. Dun liddat say. Paiseh. Where got awesome? Sometimes I get it right and sometimes I get it wrong. Mr. Market is always right. Mr. Market is the awesome one. ;)

Well, going by my past experience with Hyflux Water Trust, for example, I just have to wait till they pay me. Don't have to do anything.

LKH said...

Will you buy more at current price of $1.105 since the offer price is $1.172?

AK71 said...

Hi LKH,

You are not the first to ask me this question.

Well, we would have to pray that nothing unexpected happens from now till the day the deal is sealed. If the deal falls through, it would be back to the days of 80+ cents.

Siew Mun said...

Hi, as mentioned earlier, shareholders will still get at least one round of DPU. So you include the potential DPU and current stock price before you consider arbitrage. On the other hand State street fund may stir to get more return and stall the whole deal

AK71 said...

Hi Siew Mun,

Yup, shareholders must agree to accept this offer. There is definitely still an element of uncertainty here. Borrowing an often used phrase: Trade with caution. ;p

Siew Mun said...

To add, Mr Market is pricing the risk of an unsuccessful deal at a discount to the offer price of $1.172 at the current price.

AK71 said...

If the deal is accepted and goes through successfully, there is still a chance that we would only see 95% of the money. I think this is the real reason why the smart money is applying a 5% discount on the offer price.

95% will be paid to the REIT once the transaction is completed. 5% will go into an escrow account. For any engineering work that is required on the assets, the buyer has 28 days to deduct from this escrow account. :)

Of course, there is also the risk that the JPY could sink lower next year against the S$ since the offer is in JPY. Of course, if the JPY goes up in value, good for us. ;)

Shen said...

Hi AK,

Just saw your comment as above! wah that is very interesting. Thanks for the explanation! Hope the 5% still materializes then :) you are extremely sharp in being able to hunt such information while the rest are still in the dark! How do you do it!!

AK71 said...

Hi Shen,

It is all in Saizen REIT's announcements. We just have to read every single word. :)

It amuses me when I see so many people making wild guesses out there. Alamak. -.-"

Felix Leong said...

you were just lucky that u got such a good offer
its very very rare for a reit to get bought out

however saizen shareholders that got it during IPO are still sitting at a loss

initial IPO price was $1.00 and there was a 5 for 1 consolidation... so the current price is a super far cry from the initial $5.00 level...... LOL

value trap turned lucky, don't count on it to turn out so well all the time

Saizen could had turned out like Croesus Retail Trust, asking for money from shareholders via rights issue instead

AK71 said...

Hi Felix,

Thanks for the thoughtful comment.

I will blog a response which I feel hold important reminders for readers and myself.

Chris said...

Hi AK
Other than the buy out, there is also a special dividend of S$1.056 per unit. I thought that was really good for unit holders. Appreciate if you could walk me through the process if I choose to do nothing - no selling and let the process take place as it should. This is rather unique situation (at least for me).
Look forward to you posting more on Saizen.
Regards, Chris

AK71 said...

Hi Chris,

I believe the special dividend is probably a return of capital from the sale of assets to Lone Star. I don't think the REIT has enough cash in hand or cash flow to generate that kind of special dividend otherwise.

ted said...

Prices have gone up to 1.11 or 1.12 after the confirmation of the sale.
I don't get it, who would buy at this prices? It's a net loss at that buy-in price right?

AK71 said...

Hi Ted,

There is no accounting for Mr. Market's behaviour. We can try and it might be something fun to do. So, let's have a bit of fun.

Mr. Market is probably expecting Saizen REIT to return some money at a later date to shareholders if 5% of the purchase consideration held in an escrow account is not utilised by Lone Star.

Siew Mun said...

Saizen announces a reverse take over (RTO). They will give $0.0987 the Liquidation Value per share to Uniholders and issue new Saizen units at $0.03484 per share. Good deal?

AK71 said...

Hi Siew Mun,

We will be paid 9.87c a unit and still get to keep our investment in the REIT, it seems.
The REIT will issue new units priced at 3.484c to new investors to partially fund purchase of some Australian properties.
Whether it is a good deal or not is hard to say at this moment but to get paid and yet retain an investment that could possibly generate income for me in future sounds good. ;)

--------------------
The consideration for the purchase of the Properties (the "Consideration Amount") shall be discussed by the Parties in good faith and using commercial endeavours to determine a
mutually acceptable value to be agreed by the Parties under the Definitive Agreements and
shall be based on the independent valuations of the Properties. The Consideration Amount
shall be financed by the following:

(a) part of the Consideration Amount shall be satisfied from the receivables from the
issuance and allotment of the New Saizen REIT Units to SDPSL or its nominee(s) on
completion of the Proposed Acquisition ("Completion") at an issue price of S$0.03484 per unit. This is after taking into account the intended cash distribution(s) of up to S$0.0987 per unit, representing the Liquidation Value, to the existing Unitholders prior to the issuance of the New Saizen REIT Units; and

(b) the amount equivalent to any part of the Consideration Amount which is not satisfied
by issuance and allotment of the New Saizen REIT Units shall be satisfied by payment of cash proceeds from external bank financing (the "Properties Acquisition Loan") to HDAL or its nominee(s) on Completion. For the avoidance of doubt, SDPSL shall be solely responsible for making arrangements for the procurement of the Properties Acquisition Loan.

The trustee of Saizen REIT and the Manager will each appoint a separate independent valuer
to value the Properties.

Upon allotment and issuance of the New Saizen REIT Units, the New Saizen REIT Units will
be listed and quoted on the Main Board of the SGX-ST and rank pari passu in all respects
with the existing Units as at Completion.

Siew Mun said...

A goose that continues to lay golden eggs. ;-p

AK71 said...

Hi Siew Mun,

The eggs are smaller now but I am not greedy. ;p

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