Saizen REIT: A lesson on the right prices and luck.

A reader, Felix Leong, left me a comment on how Saizen REIT's shareholders are just lucky to get a good offer.

As I was replying to his comment, I decided that there is a lesson in this and that I should blog my response instead.

Felix Leong's comment:

Hi Felix,

Indeed, luck has a role to play in this and we should not think that this development at Saizen REIT has nothing to do with luck.

Whenever anyone tells me that he doesn't believe in luck, I would wish him luck.

When people buy any REIT that is trading at a discount to NAV, I would ask them why?

If they are hoping for the value to be unlocked, then, I would wish them luck. They would need it.

Why?

It might or might not happen.

When we buy into a REIT, to me, the main motivation should be for income.

This is a reason why although some are waving flags around for Sabana REIT now, shouting that it represents good value for money because of the huge discount to NAV, I am not convinced. 

I am not saying I am right and they are wrong. I am just saying that I am not convinced that they are right. I have shared my thoughts in a couple of blog posts on why I feel this way too.

I do feel sorry for those who got into Saizen REIT at its IPO so many years ago at $1 a share. We should all take it as a good learning experience and hopefully become wiser investors.

I rarely get anything at IPOs and when Saizen REIT had its IPO, I told friends and family that it wasn't worth the asking price. It just wasn't attractive. That was during my pre-blogging days, of course.

An important thing I try to remind myself all the time (although sometimes I forget) is that all investments are good at the right price.

So, I make an effort to keep an open mind about opportunities. Those stocks which are unloved and neglected could turn out to quite rewarding.

As investors, it is important to know what we want from an investment and if it is able to bring home the bacon.

If what we want an investment to deliver depends on luck, then, it is more speculation than investment.

When I got into Saizen REIT when I did, I was looking at an estimated distribution yield of almost 10%. Of course, there were many other considerations which, to me, made it a great investment for income at the price Mr. Market was offering.

The investment was a good fit for my motivation.

Saizen REIT has been a good investment for me and now Lady Luck has decided to smile on me.

I just hope that she would continue smiling until the sale is completed.

Yes, we still need luck on our side as it is not over until it is over.


Related posts:

1. Saizen REIT: Deeply undervalued but is it a buy for you?

2. Sabana REIT: What is the right price to pay?

Saizen REIT: Can we make some money from arbitrage?

Saizen REIT is suddenly getting a lot of attention. This is certainly a far cry from the time when I first blogged about it in 2009.

Now, with a price of $1.10 a unit, many are wondering if they could benefit from arbitrage.

Buy at $1.10, get one round of income distribution and get to receive $1.17 sometime middle of next year.

In a comment I made last evening in my last blog post on Saizen REIT, I said that we might not get $1.17 a unit next year because the buyer will only pay 95% of the consideration with the balance 5% to be retained in an escrow account.

Basically, if the buyer should identify some engineering work required for the assets being acquired, they have the right to draw upon the money in the escrow account for remedial work. They will have 28 days to do this.

We can only hope that there isn't that much engineering work required and that most of the money in the escrow account would be released to Saizen REIT in due course.

There was also a worry about exchange rate and how a weaker JPY in the next few months could affect payment to shareholders in S$.

This is no longer a concern because the very prudent management at Saizen REIT have entered into a currency hedging arrangement.

So, for those who would like to buy into Saizen REIT to enjoy some arbitrage benefit, what should we do?

Anything below $1.11 would be safer. Buying at prices higher than that would be making a wager on the buyer not drawing too much upon the funds in the escrow account.

Finally, take heed the warning provided by Mr. Chang Sean Pey that there is no assurance or certainty that the transaction will be completed. So, trade with caution.


See: Hedging arrangements.

Related post:
Saizen REIT: Firm offer by Lone Star.