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Saizen REIT: Sendai, Koriyama and Moriokas' positions in relation to the two distressed nuclear power plants.

Sunday, March 13, 2011

There is much concern that the two nuclear power plants could suffer a meltdown. "However, experts said Japan should not expect a repeat of Chernobyl. They said pictures of mist above the plant suggested only small amounts of radiation had been expelled as part of measures to ensure its stability, far from the radioactive clouds Chernobyl spewed out 25 years ago." Read full story here.

"Favourable winds will likely blow possible radioactive pollution from a blast at a Japanese nuclear power plant out over the Pacific Ocean, the French Nuclear Safety Authority said Saturday." Read full story here.

Personally, I like to look at the worst case scenario. What if meltdown should happen at the two nuclear power plants? Would Saizen REIT have to abandon the buildings in the cities of Sendai, Koriyama and Morioka even if they were not destroyed by the earthquake and tsunami?

Looking at the above map, the two nuclear plants in danger of a reactor meltdown are Fukushima 1 and Fukushima 2. Authorities have, so far, said that areas beyond 20km of the reactors are safe. This could, of course, change in time.

Sendai is about 100km away from the two plants while Koriyama is more than 60km west of the plants. I checked Saizen REIT's website and found that Morioka is north of Sendai and is therefore farther from the plants.

It would be indeed optimistic to expect zero damage to Saizen REIT's properties in the biggest earthquake to hit Japan in more than a century. This is undoubtedly a blow to Saizen REIT but the reduction in NAV and loss of rental income should be capped at about 15%. Now, knowing that the properties, if still whole, are safe from any repercussions of a nuclear meltdown at the two plants is a consolation.

In an earlier blog post, I suggested that the reduction in income distribution to unitholders could be less severe than first estimated as 13 of the 28 possibly affected properties are in the portfolio of YK Shintoku which is currently not making any contribution to income distribution. However, there would be costs involved in the restoration of the buildings affected, if restoration should be a viable option. This could impact income distribution although the extent of the impact is hard to estimate at the moment. We will have to wait for a more detailed report by the management this week.

Related posts:
Saizen REIT: Properties in Sendai and YK Shintoku.
Earth shattering news: Japan's earthquake and Saizen REIT.


Anonymous said...

Appreciate the analysis and details. Vested and debating if any action needed on the investment.

Unknown said...

Hi Ak,

You holding or selling?

AK71 said...

Hi Anonymous,

You are welcomed. Nice to hear my blogging is appreciated, as always. ;)

If we believe that the negative ramifications are limited, then, any irrational selling would be an opportunity to accumulate. :)

Could you include your name or initials in future comments? Thanks.

mark said...

U could just disallow anonymous posting and select name/url so everyone just needs to fill in something.

AK71 said...

Hi Zelphon,

Personally, I feel that any loss of NAV and income distribution should be capped at a maximum of 15%.

Taking into consideration that almost half of the properties which could have been affected by the disaster belongs to YK Shintoku, the negative effect on income distribution is lesser.

I am inclined to hold as TA shows that the REIT is now at a long term support (i.e. the 100wMA) and any downside could be a whipsaw.

Anyone who is feeling insecure could reduce exposure. I believe that peace of mind is priceless. Everyone's risk tolerance is different, after all. Good luck. :)

AK71 said...

Hi Mark,

I could do that but I want to encourage greater reader participation and I guess not everyone has a Google account or Open ID or URL.

Just gotta keep reminding people, I guess. Of course, one day, I might just do what you suggest. Hard to say. ;p

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