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.

The "secret" to AK's success as an investor.

I was talking to a friend over a cup of tea recently and we agreed that most people naturally do not have the temperament to be good investors.

Most of us are not born into a family of good investors. Those who are will have an advantage, for sure. For the vast majority of people, AK included, we might start the journey later in life and we might have to try a bit harder but unless severely disadvantaged, financial freedom is definitely not beyond us.

Having the right philosophy in life is essential as our philosophy will guide all our thoughts and actions. I have achieved what I have today financially largely because of my philosophy in life. Remember the story about the grasshopper and the ant? (See my blog post on being a happy peasant.)

Regular readers would know that I believe in saving money, the more the merrier, of course.




Something I blog about pretty often is the CPF and how we should try to take full advantage of it as Singaporeans. 

I said that if we bulk up our CPF-SA as soon as we could, we would be helping the CPF to help us build a more meaningful retirement fund more quickly. Compounding at 4% per annum over a long period of time without risk would be more magical if there is a larger base to start with.

Imagine compounding $10,000 over 20 years at 4% per annum versus compounding $100,000 over 20 years at 4% per annum. How much we get at the end of 20 years would depend on how much we put in right at the start, everything else remaining equal.

Quite easy to see that, isn't it?




Many of us are probably familiar with the idea that our CPF savings is not going to be enough for us to retire on and that we should save more money. 

Of course, a more sophisticated idea is that we should have investments that will help to fund our retirement and this argument is a very attractive one too.

At this point, let me tell you a story.

One of the stories which I enjoy sharing is how I bought my very first lot of ST Engineering's stock at $1.55 a share donkey years ago. I was attracted to how they were paying 100% of their earnings as dividends to shareholders. 

Back then, when I told some friends what I did and I had more friends donkey years ago, some went:

"Wah! So expensive! That is $1,550 a pop and then there is brokerage fee! You so rich!"

Well, something like that. 

Brokerage fee was more expensive in those days and, yes, one lot was 1,000 shares until not so long ago.

Of course, for us young people who just graduated and drew a salary of about $3,000 a month, $1,550 was a lot of money. Yes, I was a young person once upon a time.

A reader's little niece drew this.

What was even more amazing to many, including my mom, was how I bought more of ST Engineering's stock as its price rose. I remember buying at $1.70, $1.80, $1.90 etc. Well, not at those exact prices but you get the idea. 

I was buying almost every month and I have reaped the benefits of being a shareholder over many years. The very first 1,000 shares I bought are probably free of charge twice over or so by now.

So, similar to my narrative on the CPF and my strategy, it is about saving as much money as possible early in life and putting the money to work as early as possible in life, investing in good dividend payers. 

We don't have to be a genius to do this but the will to save more money right from the start must be strong.








Not too long ago, a fellow blogger whom I respect said that he admires my money habits. He commented that I am probably successful more because of my money habits than my investment acumen. I cannot remember his exact words but his comment is in my blog's comments section somewhere. 

I will be the first to say that I am not a very good investor but I can grow my wealth relatively quickly. This is not because I make a lot of money. It is because I do save a lot of money relatively quickly.

Be much better savers as early as possible in life. 




If we do this, it will allow us to become wealthier faster as it gives us more capital to invest with earlier in life and we will have more time to reap the rewards of being invested (i.e. becoming wealthier). 

If we are able to save much more money than our peers, even if we are not fantastic investors, just by investing prudently for income, all else being equal, we are most likely going to enjoy a much better outcome financially compared to our peers.

Related posts:
1. To be a happy peasant.
2. How did AK create a 6 digits passive income?
3. Greater financial well being is not beyond us.
4. The Millionaire Next Door.
5. Buying a $500,000 watch after 3 years of work.

AIMS AMP Capital Industrial REIT: 2Q2016 DPU 2.8c

One of the few friends I have complained that I don't do quarterly reports on REITs anymore. I told him don't be lazy. Go see the presentations and financial statements published by the REITs. 

Don't rely on what bloggers write. Sometimes, we blog practically useless stuff and we are wrong many times too. Yes, even very eminent bloggers are not infallible. Don't think got bloggers means he no need to work as an investor, I told him.

So, why am I doing this? 

Well, a reader just asked me whether AIMS AMP Capital Industrial REIT is good to buy. I think must be a new reader because readers who have been following my blog know that I don't answer such questions with a 'yes' or 'no'.

Anyway, the reader read some disturbing headlines in the papers regarding AIMS AMP Capital Industrial REIT and wondered if it was a good investment. I gave him a link to the financial statement and said he should find out for himself. Don't rely on newspaper headlines.

AIMS AMP Capital Industrial REIT remains my biggest investment in the S-REIT universe. The REIT continues to do what I expect it to do which is to generate meaningful income for me in a sustainable manner. The fact that they are doing this while staying prudent in their finances makes me happy.

As shareholders, I have said before that we should be more concerned with performance on a per share basis. The fact that net property income (NPI) increases is meaningless if distribution per unit (DPU) should decrease and we have seen this happening with a couple of other REITs recently especially if they continue to distribute 100% of their distributable income.

AIMS AMP Capital Industrial REIT improved on their quarterly DPU and 2.8c per unit will be distributed on 23 December 2015. 

7.82% distirbution yield based on $1.42 unit price.

They did this while reducing gearing level to 30.9%. NAV per unit is $1.52.

Their interest cover ratio is at 4.8x which is healthy and they don't have any debt due till August 2016. Financially, the REIT is very sound.

AIMS AMP Capital Industrial REIT faces the same problem that all industrial landlords in Singapore do. There is more supply and, so, more competition for tenants but the REIT has been doing a very good job of getting new tenants and renewing leases at modestly higher rates. This is a sign of diligence and also competence.

There is no reason for me to reduce my investment in the REIT at this point in time as it continues to do the job I expect it to do and, in fact, if Mr. Market should go into a depression and decide to sell the REIT cheaply, all else remaining equal, I would probably buy more even though it is already my largest investment in S-REITs.

For now, I am looking forward to more passive income in December.

See presentation: here.
See financial statement: here.

Related posts:
1. AIMS AMP Capital Industrial REIT: Opinion.
2. 9M 2015 passive income from S-REITs.

Saizen REIT: Net offer price of $1.172 per unit by Lone Star.

The news is out.

Purchaser is Triangle TMK which is a Japanese affiliate of Lone Star Real Estate Fund IV and Lone Star Funds. The Purchase Consideration is at a 3.4% premium to the appraised value of the Properties.

 

The Purchase Consideration is estimated to translate into an implied net offer price of S$1.172 per unit of Saizen REIT (“Unit”), or a slight premium to Saizen REIT’s adjusted net asset value (“NAV”) per Unit.

The Proposed Transaction is conditional upon, among others, approval from Unitholders at an extraordinary general meeting of Saizen REIT to be convened and is expected to be completed in the first quarter of 2016 and no later than 31 March 2016 or such other date as the parties may agree in writing.

 
See press release: here.




So, new shareholders who bought into Saizen REIT even at 92c or 93c a unit in the days before the trading halt yesterday would be in for a nice windfall too.

To be quite honest, I am pleasantly surprised because I was expecting an offer that is, perhaps, at a 5% or even 10% discount to NAV which means a price of $1.03 to $1.08 per unit.

I was being realistic because it is much more difficult to find a buyer who is able to buy the entire portfolio of more than 130 buildings at one go compared to selling one building at a time.

$1.17 a unit exceeds my expectation and I am in favour of the sale although I will miss having Saizen REIT in my portfolio. I have had it for so long and it has been good to me as a stable and meaningful income generator in the last few years.

Now, I notice some who are saying that Saizen REIT provides a good lesson on investing in REITs and that if we buy a REIT at a big discount to NAV, we are safe. This is not 100% accurate and, in fact, it could be a dangerous belief.

I did not buy into Saizen REIT just because it was trading at a huge discount to NAV but because the NAV was also realistic. This was just one of the many considerations I had. There were also other reasons which made Saizen REIT a great investment to me.





Interested readers might want to read my past blog posts on Saizen REIT and why I was so convinced that Saizen REIT was a fantastic investment. (Use the "Search ASSI" feature at the top of my blog.)

Now, with Saizen REIT set to be delisted, I will see my cash position swell as it is one of my 3 largest investments in S-REITs and accounts for slightly more than 20% of my passive income from S-REITs.

For me, it will be like getting 17 income distributions all at once which is better than getting them over a period of 8.5 years, for sure.

A dollar today is better than a dollar sometime in the future.





This is a good outcome and I must not be sentimental.

Congratulations to all my fellow shareholders who got in at the right time and held on till today.

Huat ah!

(Read comment made on 2 Nov 15 at 6.09 pm below.)

Related posts:
1. Possible delisting of Saizen REIT.
2. Saizen REIT: Deeply undervalued.
3. Saizen REIT: Sell the entire portfolio?