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Saizen REIT: Full Year 2011 results.

I have not blogged about Saizen REIT for some time now because there is nothing really significant to analyse after its CMBS for YK Shintoku was successfully paid up a few months ago.

I divested my investment in the REIT partially when its unit price rebounded after hitting a low in the aftermath of the triple disaster of earthquake, tsunami and nuclear crisis in March this year. This is because of the possibly more difficult economic circumstances which would plague the country as it feels the impact of the immense damage fully over time. Technically, it also looked as if further upside in unit price could be capped. As the situation lacks a level of clarity which I would require to invest with a peace of mind, partial divestment was the way to go.

Yesterday, Moody's cut Japan's government bond rating to Aa3 from Aa2. The new rating is three notches below Moody's top Aaa rating.

While pointing out that more than 90% of Japan's debt is held domestically, I have also acknowledged in the past that debts will have to be repaid in time as its ageing population draws down on its savings increasingly. While the downgrade by Moody's is hardly surprising and does not mean that Japan is collapsing in the immediate future, it does remind us that Japan's slide downwards has not stopped.

Having said this, I still retain a rather significant investment in Saizen REIT in absolute dollar terms as I still like the idea of having exposure to freehold residential property in a country where two thirds of its population rent the homes they stay in.

The REIT's gearing level has also dropped to just 24% and its NAV per unit (adjusted for warrants) is a relatively high 29c. Interest cover ratio is a tad low at 3.1x. DPU of 0.5c has been declared for 2H 2011 (payable on 16 Sep). An annualised DPU of 1c with a unit price of 14.9c would mean a distribution yield of 6.7%. Pretty decent.

In 1H 2012, six months later, we could see a higher DPU as a full six months income generated by YK Shintoku would be distributable to unit holders. However, bearing in mind that many properties were divested to repay its CMBS, some might question if such contribution would be significant? From memory, YK Shintoku had a very large portfolio of properties and, again based on memory, we could see DPU bumping up some 10% possibly.

The same rating agency that downgraded Japan's debt rating raised Saizen REIT's debt rating from Caa1 to B1. This is good news as it could make financing more readily available and at a lower price for the REIT. The management has mentioned its desire to raise gearing level to 35% and the better rating should help.

Saizen REIT remains a recovery story in the making. We can only wait and see if the expected more difficult economic conditions in Japan will present any challenges for the REIT in time.

Read article here:
Moody's downgrades Japan's debt rating citing large budget deficits and government debt.

See Full Year 2011 presentation slides: here.

Related articles:
Japan's debt issue and Saizen REIT.
Sanity prevails with more good news.

Dr. Marc Faber: How not to lose money?

I have the greatest respect for Dr. Marc Faber and his insights have so far been spot on. In a recent interview, he said "I am ultra-bearish about everything geopolitically. In an environment of money printing, we have to ask ourselves, how do we protect our wealth? ... Where do we allocate the money?"

In summary:

1. Treasuries:

"U.S. government bonds are junk bonds," Faber said. "As long as they can print, they can pay the interest. But another way to default is to pay the interest and principal in depreciating currency." (AK71: Yup, countries inflating their way out of hard times has been done before.)

2.  Cash:

Specifically, the problem in Faber's view is the loss of purchasing power as inflation whittles away the value of money. (AK71: I believe he is referring more to the US$ and also the Euro. The S$ has been strengthening and we are still seeing inflationary pressures but it would be much worse for the US$ and the Euro.)

3. Stocks:

If you print money, stocks will not collapse. (AK71: I am sticking to my plan like glue! Remember my plan?)

4. Emerging markets:

Faber's own stock portfolio is centered on dividend-paying Asian shares, particularly in Malaysia, Singapore, Thailand and Hong Kong. These include a variety of real estate investment trusts and utilities. (AK71: Honestly, I knew that he was a fellow investor in Hyflux Water Trust but I did not know that he is also into REITs! I like this. Stick to the plan!)

5. Gold:

Faber is convinced that the price of gold will continue rising and that any pullback is a buying opportunity. And as a currency, Faber said gold should be held in its physical form and not in shares of gold miners or even exchange-traded funds. (AK71: I have recently replied to a reader that I feel that I am underinvested in gold and silver. However, being in Singapore and having S$ denominated assets, I feel much safer.)

Read complete article here.

Related post:
1. Sleep well at night with a plan.
2. Hedging and precious metals.
3. Hyflux Water Trust: Privatisation.
4. Staying positive on S-REITs.