Saizen REIT: 3Q FY2011 results.

(Something is wrong with Blogger. This blog post appeared on 13 May 2011, not 15 May 2011.)

As expected, YK Shintoku's CMBS is to be fully repaid very soon by end of May 2011. The repayment is funded by the REIT's internal cash resources (including proceeds from the exercise of warrants) and proceeds from the divestment of properties. It is expected that the operational cashflow from YK Shintoku's properties would contribute towards distributable income from the month of June 2011, therefore. Annually, this could bump up distributable income by some 10%.

I do not know if this would provide a positive catalyst to the unit price of the REIT. It could well have been priced in. Any upside could be capped at 15.5c which was the highest the unit price went to when the counter recovered from the panic selling which took place in the wake of the disastrous earthquake and tsunami.

It was revealed in its 3Q FY2011 report that JPY200m (S$3m) will be spent to repair properties affected by the disasters. It was also revealed that these would be funded by the REIT's reserves and would not affect income distributions.

How much is the estimated DPU for 2H 2011 payable sometime in September 2011? Distributable income for 1H 2011 was JPY383,858,000. Distributable income for 3Q 2011 came in at JPY187,213,000. If we simply double it, we would have JPY374,426,000. This is slightly lower than for 1H 2011 due to the continuing divestment of properties. However, 4Q 2011 would probably see 1 month of income contribution from YK Shintoku's properties. This could make up the difference.

In 1H 2011, we had a DPU of 0.52c. If distributable income remains largely the same for 2H 2011, we could see a lower DPU. This is due to a larger number of units in issue after the exercise of almost 52,000,000 warrants, seeing an increase of some 4.6% (which suggests a potential DPU of 0.5c).  A complete exercise of all warrants could see a further 23% decrease in DPU (which suggests a potential DPU of 0.385c). This is assuming that the exchange rate between the JPY and S$ remains largely the same as in 1H 2011.

In 2012, however, we should see the full contribution from YK Shintoku's properties which would bump up the distributable income by some 10% in all instances. We must not forget also that due to the amortising nature of Saizen REIT's loans, the distributable income is some 33% lower than what it could be.

Over time, distributable income in JPY terms is most probably going to increase. Imagine if the REIT were allowed to pay only interest on its loans and not make any capital repayment. The distributable income would be higher by 50%! Now that the REIT is made to amortise its loans, it would have smaller interest repayments in future as the loans would reduce in size. One has to think long term in order to appreciate the attractiveness of the arrangement.

Saizen REIT remains an investment that would appeal to anyone looking to invest in freehold residential properties in Japan with a relatively attractive yield. In FY2012, assuming all warrants were to be exercised, expect a full year DPU of approximately 0.385c x 2 + 10% = 0.85c, which at the REIT's current unit price of 14.5c means a distribution yield of 5.84%. This is premised upon the JPY staying strong against the S$, however.

I still have a large investment in this REIT although much smaller than before. It would be interesting to see what is the DPU when 4Q 2011 results are announced in another three months from now. It would also be interesting to see how the market would react to the REIT's results. Good luck to fellow unitholders.

See Saizen REIT's quarterly announcement here.

AIMS AMP Capital Industrial REIT and Sabana REIT.

(Something is wrong with Blogger. This blog post appeared on 12 May 2011, not 15 May 2011.)
In life, good and bad things happen. We just have to hope that more good things than bad things happen. If good things happen, we have to know it when we see it and take advantage of them. If bad things happen, we must know to take remedial action and not sink deeper. Easy to say and hard to do? Probably.

I believe that a good thing is happening now with Sabana REIT. OK, it is a matter of perspective. For those who bought it at $1.05 a unit at IPO, it might not look good at all. However, look at it from a different angle and it is a chance to accumulate more on the cheap. Well, some might say cheap could get cheaper. Indeed, it could.

I indicated in an earlier blog post where I think the supports for Sabana REIT's unit price would be if 91c were to be compromised as immediate support. You might want to read the blog post here. Today, price went to a low of 90.5c.

Regular readers know that Saizen REIT was my single largest investment until the recent partial divestment as its unit price rebounded from a serious bout of panic selling. AIMS AMP Capital Industrial REIT is now my largest investment.

At today's price of 20.5c and an annualised DPU of 2c, AIMS AMP Capital Industrial REIT has a distribution yield of 9.756%. Comparatively, Sabana REIT has an annualised DPU of 8.81c and at today's closing price of 91c, the REIT has a distribution yield of 9.68%.

AIMS AMP Capital Industrial REIT has a gearing level of 32% and an interest cover ratio of 5.7x while Sabana REIT has a gearing level of 24.9% and an interest cover ratio of 7.9x.

I also like Sabana REIT for having 44% of its portfolio in high tech industrial buildings. This compares favourably against AIMS AMP Capital Industrial REIT's 17.7%.

I could very well do some re-allocation of funds through a partial divestment of my investment in AIMS AMP Capital Industrial REIT and increasing my investment in Sabana REIT if the latter's unit price should weaken further, everything else remaining equal.

See presentation slides for AIMS AMP Capital Industrial REIT here.

See presentation slides for Sabana REIT here.