Saizen REIT: Sell the entire portfolio or find a larger partner.

One of my more successful investments in the last few years is probably in Saizen REIT and regular readers who have followed the story would be quite familiar with it. So, I shan't repeat the narrative.

In the past issue of The EDGE, it was reported that a major investor in Saizen REIT is unhappy with the lack of growth in the REIT. Well, actually, the fact that Argyle Street Management (ASM) is unhappy isn't anything new and I blogged about my view in November last year.

Now, the CIO of ASM is suggesting that "we either sell the entire portfolio or find a much larger partner." There is quite a bit of frustration but it is probably justifiable.

This is because Saizen REIT's NAV/unit is $1.22 and it is trading at around 90c a unit. If all the REIT's properties were to be sold at valuation, shareholders would receive $1.22 a unit or a 35% gain from the current market price. So, if there should be a willing buyer, selling the entire portfolio at valuation makes sense.

In fact, I am inclined to believe that Saizen REIT's properties are worth much more since they managed to sell a property in May at 19% above book value and another one in August at 12.8% above book value. This suggests that the book values of the REIT's properties are rather conservative.

The REIT's NAV could be about $1.35 to $1.40 per unit. This means a potential capital gain of 50% to 55.5%. It is, however, I believe, harder to find a buyer for the entire portfolio at such high prices.

Well, whether or not the current managers of Saizen REIT are replaced, for me, is less important than how my investment in the REIT could be impacted.

I have examined before the sustainability of the current day DPU and, if I remember correctly, I said it should be sustainable for the next 8 years. Could we see the Japanese economy and currency strengthen in the next 8 years? I don't know but I do know that there is enough resources to maintain the current level of distributions for a few more years. Beyond that, I expect DPU to reduce, everything else remaining equal.

A DPU of 6.3c translates to a distribution yield of about 7% at a unit price of 90c. If I should be paid $1.22 per unit for my investment in the REIT, I would liken it to collecting many years of income distributions in advance which is not a bad thing. A bird in hand is worth two in the bushes, as the saying goes.

So, am I going to increase my exposure to the REIT? No. Why? Isn't it a good investment for income? I believe it is but my exposure to the REIT is already quite large and I estimate it to be some 12% or 13% of my entire portfolio. My only other two investments which are bigger are AIMS AMP Capital Industrial REIT and First REIT. I don't see any need to increase the weighting of any of these REITs in my portfolio.

What if I did not have any exposure? Well, if I should be happy being paid a 7% distribution yield buying into rather undervalued freehold Japanese residential real estate, I might initiate a long position. Then, all that is left for me to do is to wait.

Related posts:
1. Saizen REIT: Good investment for income?
2. Saizen REIT: Undervalued.
3. Saizen REIT: Is the dividend sustainable?

A true story about life insurance and grapes.

There are a few big ticket items in life. The biggest is probably the apartment or house we stay in. Another one is a car, for those who choose to have one. 

I know this may not sit well with some of you going by some of the response my blog post on the topic got but children are big ticket items too. 

Another thing that could become a big ticket item for some is the cost of insurance.

In all these, consume because we have to but if we over-consume, we are jeopardizing our finances. Do the necessary research before committing to any big ticket items. 

An apartment, a car, children or insurance. You name it. 

Don't just jump into it and think that things will sort themselves out.

The following is an email from a reader who wants to share with us why it is important to know what we are buying and if we have all the facts before making a decision:



Reader:
It's been a while since I last emailed you - I hope you have been keeping well.

I saw that you were getting a bit of flak in the comments section of your recent ILP blog entry. I just wanted to share with you that I thought it was a well written, informative and balanced post (no matter whoever who keeps challenging you to show figures that ILP investments ain't great).

Just thought i should let you know that i wished that i had read such a post like your four, five years ago as I was just graduating from school and entering the workforce.

You see, the first piece of advice we hear as we are entering the workforce is: you gotta buy some insurance. 

Everyone was doing it, my parents told me to do it. But at that time I was seriously misinformed - I had no idea at all what the difference was between endowment plans, ILPs or term (in fact my agent did not even bring up term insurance!). 

I signed what I believe to be an endowment plan that had some cover on dread diseases, death etc. There were funny things like yearly bonuses (if the market did well cos the plan was linked to some share investments too). 

Well it has been 4 years since and I have no idea how the plan is doing in terms of returns/yields at all. I suppose it is probably hard to distill out a yearly return because there is an element of health insurance to it (see how confusing it is for me).



So what I'm saying is: I wish I had read such a post like yours just as I was starting out. I wish I had been more informed. I would have bought term, invest the rest. Seriously.

But I'm not blaming anyone. We could look back and say that my insurance agent should have laid down the variety of plans for me, but at the end of the day, they work for commissions - so why would they bother to explain more, if not required as such by regulations? I don't blame them either.

And while I cant go back in time and buy term insurance, I'm really glad that somewhere out there a young person entering the workforce will hear about term insurance and the possible downsides of ILPs from your blog post and make an informed decision.

I guess financial sale persons are up in arms when they read postings like that because they feel they are being vilified as agents who put their own interest ahead of their clients. But but but, isn't that true? Don't all salespersons do that? 

That day, on the outskirts of a Japanese village, I chanced on a roadside store selling Kyoho grapes. I selected a bunch of juicy grapes and handed it to the store owner for payment. 

She put down the bunch I selected, motioned to another bunch and said it was better. And she packed it. Initially I was like, "Wah, so honest!", thinking that she was trying to help me select better grapes. 

When I came back home and opened the packaging, turned out that the hidden grapes behind were all rotten and giving out a foul smell. I had to throw half away.





So the moral of the story is: unless it is obvious to the sales person that you are going to be a repeat customer/ going to intro more customers to them, you are better off selecting your own grapes. 

And you best be knowing a thing or two about grapes, before buying grapes.

Related posts:
1. FREE Investment Linked Polices or Term Life Polices?
2. Slaving to stay in a condominium?
3. Sophisticated consumers lease cars, not buy.
4. What is our attitude towards having children?
5. Financially prepared to be married?