Saizen REIT: Better than expected DPU.

Saizen REIT reported full year results this morning and declared a DPU of 0.26c, payable on 29 September 2010.  This is better than expected as the REIT did not have a full quarter to accumulate cash for distribution.  They also refinanced GK Choan and had to pay some fees as well as amortise that loan.  Read about it here. 

So, I was expecting a smallish cash distribution of about 0.1c in September.  Instead, a DPU of 0.26c in September, given the difficult conditions, bodes well for the next DPU in December which would have a whole quarter to accumulate cash for distribution to unit holders.  I estimate the DPU in December to be between 0.4 to 0.5c.  Assuming it is 0.4c, that would give an annualised DPU of 1.6c and an annualised yield of 10% at the current unit price of 16c.

Some key numbers from the reports:

1.  Annual valuation of properties (161 Freehold buildings in Japan) declined 4% from a year ago from JPY42,051.1m to JPY40,381.7m.  The rate of decline has slowed and this is in line with the general view that real estate prices in Japan are bottoming.  Read valuation report here.

2.  NAV is still at 40c per unit given the strong JPY.  The JPY is likely to stay strong, given the concerns of weak recoveries in heavily indebted western economies.

3.  NPI yield at 6.7%.  This is above the average of 5% that is required by most pension funds.

4  Gearing level at 36.9%.  This is quite comfortable.

5. Occupancy rate at 91.3%.  This is Saizen REIT's strength as it was able to maintain an occupancy rate of above 90% even through the recession.

Read full report here.

The one last thorn in the sides of Saizen REIT is the CMBS for YK Shintoku.  A punitive interest rate of 7.07% is still being paid to the bondholders.  Successfully refinancing this CMBS with a conventional bank loan at a more reasonable interest rate of about 4% would bring about substantial cost savings and could bump up DPU significantly.  This would be a major positive catalyst for Saizen REIT's unit price to be revalued upwards when it happens.

Discussions with a financial institution on the terms and timing of a loan, which will potentially enable the loan of YK Shintoku to be refinanced, have commenced. Currently, the main impact of the maturity default is the increase in interest rate on the outstanding loan amount from 3.07% per annum to a default interest rate of 7.07% per annum.

I am happy with Saizen REIT's results and look forward to a higher DPU in December.

Saizen REIT's slides presentation here.

Related posts:
Saizen REIT: 3Q FY2010 results.

Improve your trading skills: Learn technical analysis from the experts.

Macquarie is inviting avid investors and traders to a FREE SEMINAR where Mr. Keane Lee, the founder of the T3B trading system, will be sharing his trading techniques. These include trend spotting and opportunities, how to set stop losses and using gearing to increase returns.

The session will also include a short presentation on warrants and how they can be used to increase exposure while limiting total capital at risk.

About Mr. Keane Lee:
Mr. Lee obtained his DR License and was a Dealer Representative proficient in various trading systems, strategies and indicators. This was in the 1990s. He is highly proficient in intraday and short term swing trading in stocks, CFDs, futures, options and warrants. He formulated his first trading system in 1996. This was vigorously back-tested, forward-tested, evaluated and refined. He became a multi-millionaire using this system before he was 30.

Improve your trading skills: Learn technical analysis from the experts.

Dates: 30 August 2010 & 31 August 2010

Time: 6.30 pm to 8.30 pm

Venue: DBS Auditorium, 6 Shenton Way, DBS Building Tower 1, Level 3

Admission is FREE and light refreshments will be provided after each session.

Register at: http://www.warrants.com.sg/en/seminar/seminar_e.cgi

ADVERTORIAL

AIMS AMP Capital Industrial REIT: Rights issue.

Unlike the share placement proposed by Cambridge Industrial Trust, a rights issue allows all unit holders to participate in an enlarged capital base and to reap the rewards, if any.  So, is this rights issue beneficial to unit holders?  Let us examine the proposal.

I won't go into the full details since anyone interested enough could find all the details in the announcement at SGX.  Read it here. For anyone who is more visually inclined, presentation slides could be viewed here.

Basically, the proposal is to acquire 27 Penjuru Lane (a 30 years leasehold property starting October 2004) for S$161.0 million.  This price is about 2% below the latest valuations.  This acquisition will be funded by debt and equity.

Debt is in the form of two term loans (a 3 year term loan of S$100m and a 5 year term loan of S$100m) and a revolving credit facility of S$80m for a period of 3 years. The manager will use S$97 million to part finance the cost of the acquisition and S$175 million to refinance an existing S$175 million facility maturing in December 2012, allaying refinancing fears.  The 7 for 20 rights issue at a price of 15.5c per unit would raise a net amount of $74.8m, of which S$64.5 million will be used to part finance the acquisition.

The acquisition will contribute to a higher NPI yield.  The current portfolio has a NPI yield of 7.4% while the property to be acquired has a NPI yield of 7.7%.  Post acquisition, the NPI yield for the REIT becomes 7.5%.  Due to the rights issue, however, the NTA per unit would decline from 31c to 26c.  However, what is of more interest to unit holders is probably the DPU and how it would be impacted.

Acquiring the property in question would bump up the total cash distribution to unit holders.  However, due to the rights issue, actual DPU would decline from 0.54c per quarter to 0.52c per quarter. So, existing unit holders will see a reduction of 3.7% in yield for their current investment in the REIT.

Having said this, unlike a share placement as proposed by CIT which dilutes the shares of existing unit holders without any benefits, the rights here are offered to unit holders at only 15.5c.  On an annualised basis, these rights shares are therefore going to enjoy a yield of 13.42%. We lose some and we win some. I support this rights issue and will apply for excess rights as well.

K-Green Trust: Possibly stabilised.

On 15 Aug, I did a TA for KGT and suggested that its chart showed some weakness. At that time, it hit a low of $1.11.  In the next two sessions, it went to a low of $1.10 as its price hugged the lower Bollinger. It has since shown a detachment from the lower Bollinger as price moved sideways. Volume has been declining in recent sessions with this sideway movement in price. This suggests that much of the selling is done. This is possibly confirmed by the OBV which has gone flat which suggests a stalemate between accumulation and distribution.

 

The RSI's lower highs indicate recent selling pressure and the index is now in oversold territory.  The MFI has similarly entered the oversold territory with falling demand. However, both indices are turning up slightly. Is a reversal on hand? It is too early to tell. However, there is a picture of growing stability as price has moved sideways for more than a week.

I decided to look at the Stochastics since it is most useful in a rangebound situation.  It has been trending up in the oversold region since 5 Aug. This looks promising. It means that the daily closing price has been relatively stronger in recent sessions compared to its price range.

On 3 July, I blogged that KGT has "Stable cash flow, low risk and room to grow.  This sounds like a good addition to my passive income portfolio. It diversifies my income stream and injects a higher level of stability at the same time. The lower yield is acceptable because of its debt free balance sheet.  When a balance sheet is heavy in debt, the risk is higher and, consequently, I would demand a higher yield."

I have been waiting for a possibly better entry price but it was impossible to use TA at that time as KGT was newly listed then. This situation is being corrected.

I believe the catalyst for an upward movement in price for KGT would be the announcement of a cash distribution and a near term support seems to have formed at $1.10 in anticipation of this. Therefore, I would buy some at the current price of $1.11 instead of waiting as per my original plan.

With an estimated yearly DPU of 7.82c, buying at $1.11 would give a yield of 7.05%.  It would also be buying at almost the NAV of $1.12. I believe that KGT would be a valuable part of my passive income portfolio.

Related post:
Charts in brief: 13 Aug 10 (Part 3).