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Key points for me:
1. Saizen REIT's properties are all Freehold and not Leasehold. So, there is no "depreciation" which some investors might be concerned about.
2. Occupancy rates have been consistently above 90% even through the financial crisis which reinforces the idea that demand is relatively inelastic for Saizen REIT's properties.
3. Average rental rates have stayed consistently above JPY1,500 psm.
4. If YK Shintoku were to suffer foreclosure, the nett effects would be a 22% decrease in nett property income, a 10% reduction in NAV and its gearing level would decline from the current 36.9% to 27.4%.
A 22% decrease in nett property income would probably mean a similar reduction in dpu from my projection here. Based on the current number of units in issue, the dpu would reduce from 2c to 1.56c giving us a yield of 9.45%. The NAV would reduce from 39c to 35c approximately. With the proforma foreclosure gearing at 27.4%, Saizen REIT would emerge unscathed and, in my opinion, stronger in its balance sheets. So, if YK Shintoku goes through a foreclosure, Saizen REIT remains a great investment as it has high yield, a big discount to NAV and low gearing.
The CMBS lenders for YK Shintoku, as expected, are dragging their feet and still "formulating course of action". Why would they want to go ahead with foreclosure when they are receiving 7.07% interest payment now? They are lenders, not property managers or investors, after all.
YK Shintoku's property income is more than sufficient to cover the punitive interest payment due to the default. So, it is still more positive than negative to keep the status quo.
Presentation slides here.
Saizen REIT to resume FY10 distribution to unitholders in Sept
Wednesday, 12 May 2010
Wednesday, 12 May 2010
© 2010 - The Edge Singapore
SAIZEN REIT:
Out of woods and resuming cash distribution
Written by Sim Kih, Thursday, 13 May 2010.
Read the article in NEXT INSIGHT here.
Related post:
Saizen REIT: March 2010 presentation.
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