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Saizen REIT: DPU 0.66c.

Friday, February 8, 2013

With the JPY having declined almost 20% against the S$, I was expecting a reduction in DPU, everything else remaining equal.

However, all else did not remain equal and instead of a reduction in DPU, an increase to 0.66c is what we have.

What did the management do to improve the DPU?

1. Aggressive buying back of units from the open market.

2. Continual buying of new properties in Japan.

3. Lowering finance cost through loan principal repayments.

4. Improved occupancy from 91.0% to 91.7%.

To be fair, the REIT actually deployed its cash reserves with regards to point 3. Whether it is able to continue doing this depends on their level of cash reserves in future.

So, there is still a possibility that we could see future DPU reducing not just because of a weaker JPY but also because future loan principal repayments could be made from the REIT's income.

However, if it should happen, I believe it to be just short term pain as future DPU could be then enhanced when finance cost becomes reduced further, everything else remaining constant.

I am happy with the numbers reported and will be even happier when income distribution takes place on 22 March 2013.

See announcement: here.

Related post:
Saizen REIT: Still a buy?


SnOOpy168 said...

Perhaps it's cash reserves are kept in SGD, thus shielding us from thefluc JPY fluctuations..

I do wished that they would do any shares buy back. Use the $ for more properties acquisitions & AEI.

anyway, i m happy with the increased DPU ^_^

Andy said...

Hi AK71,

It was report in the Financial report that exchange rate is 70.2 yen to S$1, but now the exchange rate is 75.41 yen to S$1.

This means its NAV/share is now S$0.25

You think it is still worthwhile to hold on to saizen given that the Japanese govt seemed hell bent on depreciating yen?

AK71 said...

Hi SnOOpy168,

With unit price still at more than 20% discount to its NAV, share buy backs are still efficient ways of increasing value for unit holders. ;)

To illustrate, all else being equal, would I buy a building valued at $100m or would I want to buy into a fund, available at a 20% discount to NAV, which owns that building?

AK71 said...

Hi Andy,

Mr. Abe is quite determined to see a 2% annual inflation rate. The JPY has weakened a lot in a very short time to reflect this.

With NAV/unit at 25c, Saizen REIT is still trading at a big discount to NAV at the moment. So, it is still undervalued.

Of course, if we believe that we should apply a discount to NAV for any reason, then, there is an element of subjectivity.

A few months ago, I said I believed the fair value to be about 21c/unit. See the comments in: 2H FY2012.

I would now ask if the distribution yield is still attractive. Can I get the same returns from an alternative investment with similar or lower risk?

An annualised distribution yield based on 19c/unit is about 6.95% now.

Unknown said...

What do you think of recent selling of Saizen share by the CEO/Director?

AK71 said...

Hi fpga pro,

There are many reasons why insiders could be selling and only they have the answer. :)

However, I would think that at least one message is quite clear and that is Saizen REIT is probably not undervalued now by their standards. ;)

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