Saizen REIT: A foreign talent!

This blog post is written in reply to a comment by a reader with regards to Saizen REIT. Read the reader's comment: here.

My reply:

Hi Simple Boy,

The way in which you annualised the income distribution is valid. It is always an estimate anyway and discussing whether it is accurate or not won't be very meaningful, I feel. So, I shan't be crunching numbers here.

As for comparing Saizen REIT's distribution yield against those of other S-REITs', I think it could be doing Saizen REIT an injustice to do so.

Firstly, different property types will command different yields and certain property types command higher yields. Saizen REIT owns residential real estate which, usually, are lower yielding. However, the demand for rental properties is relatively inelastic, especially in a country like Japan where the majority rent their homes. We don't have another REIT in Singapore that holds residential real estate for us to do a comparison against Saizen REIT.

Secondly, in the world of S-REITs, Saizen REIT is a rather strange animal because it doesn't have any properties in Singapore. All of its properties are in Japan. So, should we really call it an S-REIT or should we call it a J-REIT? I am inclined to think of it as a J-REIT that has a PR status in the world of S-REITs. Foreign talent, you know?

So, if we want to compare apples with apples and if we take a look at J-REITs, we would discover that it is rare to find those with distribution yields of 6% or higher.

Of course, to really compare apples with apples, we should compare Saizen REIT with J-REITs which hold residential real estate. There are quite a few J-REITs holding residential real estate but here are some numbers from 3 such J-REITs with the second last column representing the annualised distribution yields.



Click to enlarge.
Source: Tokyo Stock Exchange.

So, in the world of residential properties J-REITs, Saizen REIT would look very attractive now.

Could we see Saizen REIT's distribution yield declining to become closer to what J-REITs are offering now? I don't know. I need a working crystal ball to answer this question. My bowling ball struggles but cannot make it. However, I do know that distribution yield will decline if DPU falls or if unit price increases. 

So, what should we as income investors do? We look at how the DPU could fall, given all the information which we have. When we do this, we are actually assessing the level of sustainability of the REIT's income. There is no point in wondering how high the price could go or is there?

Of course, if someone would prefer to invest in S-REITs with higher distribution yields compared to Saizen REIT, there isn't anything wrong with that. However, making investment decisions based purely on distribution yields would be somewhat myopic.

Related post:
Saizen REIT: Rewarding patient investors.

Free "e-book": Retiring before 60 is not a dream.

AK is a lazy fellow who is always thinking about retiring and how he doesn't want to have to work for money. 

So, when AK read a recent article on how most fellow Singaporeans who want to retire before age 60 are unable to do so, the blogging bug bit him.





The article appeared in CNA and in summary:

1. 
54% of Singaporeans would like to retire before 60 years old. Only 36% believe they are able to.

2. 
48% believe that they will have less than $2,000 a month at 60 years old.

3. 
More than 90% have savings.

4. 
56% have started to save for retirement.

Read the article here:
http://www.channelnewsasia.com/news/singapore/many-s-poreans-doubt-they/1122962.html




I believe more than half of the respondents have taken the very important first step and that is to save money for retirement. 

However, nowhere in the article was the word "investment" mentioned. 

There was also no mention of how we could use tools available to us to help grow our funds for retirement. 

Give us enough information to worry us but not give us the solutions? 

Read the article and see if you can find the reason why.

Anyway, as this is a topic I have blogged about frequently, I decided to put together what could be 6 chapters in an e-book which could be useful to anyone who might be interested.

Chapter 1.
Be prudent when it comes to expenses, especially the big ticket items. 

Do we need to stay in a condominium? 

Do we need that car? 

Do we need to send our children to universities overseas? 

We could seriously boost our efforts to save for retirement by having our feet firmly planted on the ground.

Read: Why a wealthy nation cannot afford to retire?




Chapter 2.

If we are saving specifically for retirement, use the SRS. 

Many people I know still do not believe in the SRS. 

I don't understand why.

Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer. Charlie Munger.

Read: A brief analysis of the SRS.






Chapter 3.
Time is required for compounding to do its magic.

I still believe that the CPF-SA is a relevant tool and that we should let time help us meet the minimum sum required. 

There are quite a few examples of people who have done this. 

It works.

Read: Securing risk free returns early for retirement.




Chapter 4.
Don't hold on to too much cash. 

We should put aside a meaningful sum of money every month as we save towards retirement but just leaving the money in a savings account is not a good idea. 

Inflation and paltry interest rates mean that our savings will shrink in real value.

Read: Have huge amount of savings and work till 70?






Chapter 5.

Get rich slowly and retire a millionaire. 

Put aside an emergency fund and invest the rest of our savings. 

Never depend on single income. Make investment to create a second source. Warren Buffett. 

Invest for income and that is what I have been doing.

Read: Retiring a millionaire is not a dream.




Chapter 6.
As we save money and build wealth for retirement, we should not forget to also protect our wealth.

Read: Millionaire or not, plan for retirement.

Unless severely disadvantaged, if we do the right things, there is no reason why we would not have enough money to retire comfortably in Singapore. 

We can do it!
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You might also be interested in:
How to upsize $100K to $225K in 20 years?
(Published in August 2014)
An update on AK's CPF-SA.
(Published in January 2016)