2016 full year passive income from S-REITs.

In this final blog on S-REITs in 2016, I want to record a heart felt good bye to Saizen REIT as we knew it. The REIT was one of my largest investments in the S-REITs universe for many years. It was an asset play and an income stock that amply rewarded my strategy of being paid while I waited.

Now, this brings us nicely to the importance of investing in income producing assets. For many of us, not having passive income means working till the day we die. It would also probably mean having a weaker ability to cope with very real financial challenges in life such as inflation.

Warren Buffett once said that we should not depend on a single income and that we should make investment to create a second source. To me,  quite simply, this means investing for income, which is what I have been doing mostly.

If you are a regular reader, I hope my experience will keep you pumped up for the new year. 

If you are a new reader, I hope my experience inspires you to consider investing for income (if you are not doing it already) for a financially more secure future.

2016 full year income from S-REITs.

In 2H 2016, I added to my investment in Soilbuild REIT due to a rights issue. This was at 63c per rights unit. I took up my entitlement and also applied for excess rights. From that exercise, I increased my investment in the REIT by more than 10%.

Some details:

1. Issue of 94,353,672 new units in Soilbuild REIT on the basis of 1 New Unit for every 10 existing units in Soilbuild REIT. 

2. Funds to partially finance the purchase of a building, 2 Bukit Batok St 23, which has an initial annual rental of $8 million. 

Another bit of news of interest to me was the reverse takeover (RTO) of Saizen REIT by Sime Darby. As I am still holding on to my original investment in Saizen REIT, I received another distribution before the RTO was effected. It means that I received a tidy 5 figure sum which, of course, made me happy.

I said this earlier in August:

"We will be paid 9.87c a unit and still get to keep our investment in the REIT."

I haven't been doing much with regards to my investments in S-REITs. 

Mostly, I am just collecting dividends regularly and letting professional managers take care of the day to day operations.

Total income from S-REITs in 2016: 

S$ 452,243.52

This figure includes the bumper distribution from Saizen REIT which will not be repeated in future.

If we were to exclude all income distributions from Saizen REIT this year, total income from S-REITs in 2016 would only be:

S$ 66,933.70

Quite shocking how much smaller the number is, isn't it? This shows how big an investment I had in Saizen REIT. 

The lower income, without any contribution from Saizen REIT, translates to S$ 5,577.80 a month.

This is still quite comfortable for one person to live off but unless I can make up for it somewhere, this lower income from my investments in S-REITs is something I would have to live with in future. 

Of course, if you have been following my blog, you would know what I have been doing to make up for the shortfall.

A few years back, I had 5 relatively large investments in S-REITs. Today, only 2 are left.

If you are wondering which 2, with the value of my investment in Saizen REIT drastically reduced in the past year, 

AIMS AMP Capital Industrial REIT 
and 
First REIT 

are now the only S-REITs which have significantly more weight in my portfolio.

Some might remember that, a few years ago, I drastically reduced my exposure to LMIR and Sabana REIT for different reasons, locking in some decent gains in the process. So, my S-REIT portfolio has been shrinking in size for some time.

With interest rates probably going higher, there is a reasonable need to be cautious when investing in S-REITs but there is no need to be pessimistic.

In response to a reader who was rather pessimistic:

The worry is probably common amongst investors.

This was a conversation with a reader who raised two questions:

What do I find more important?
1. Relatively reasonable gearing.
2. Relatively strong cash flow.
3. Relatively good manager.

(If you want to listen to AK talking to himself a bit more, go to related post #3 at the end of the blog.)

That ends this blog post and I will share some thoughts on my non-REITs portfolio, hopefully, before the year ends.

Related posts:

1. Saizen REIT RTO.

2. 1H 2016 income from S-REITs.
3. REITs and interest rates (2014).
4. 2016 income from non-REITs. 

2012 full year passive income from S-REITs.

After a few requests by readers for me to blog about my 2012 full year passive income from S-REITs, I was pleasantly surprised to receive advice from a reader that I should not blog about it. Since I was of two minds whether to go ahead, I started a poll on 11 December to see what readers want. The poll ran for two weeks, ending on Christmas Day.

Readers have spoken and here is the blog post by popular demand.

This year, I sold some of my investments in S-REITs as their unit prices moved higher and their distribution yields compressed. Of course, the plan is to possibly increase my long exposure again should their unit prices experience any significant correction. If their unit prices were to continue moving higher, my portfolio would continue to benefit from capital gains.

However, higher unit prices would create a problem as my remaining long positions in S-REITs are part of my core investments for income which means that if I were to further divest even partially, I might not be able to achieve my target annual passive income level. Some might say that this is a happy problem to have but it remains a problem.

I also made an opportunistic purchase of units in Saizen REIT when its unit price plunged 15% as its warrants expired middle of the year. So, I was able to increase my long exposure to the REIT again at a relatively attractive average price, locking in a rather high distribution yield of 9+% on cost, almost quadrupling my position in the REIT within a few days. This highlights the importance of having a war chest ready to seize opportunities when they present themselves. Saizen REIT is once again an important part of my portfolio of investments for income.

An apartment building in Japan owned by Saizen REIT.

My five largest investments in S-REITs are now:

1. AIMS AMP Capital Industrial REIT
2. Sabana REIT
3. Saizen REIT
4. First REIT
5. Lippo Malls Indonesia Retail Trust

I also have five smaller long positions in:

6. Cache Logistics Trust (CLT)
7. Cambridge Industrial Trust (CIT)
8. Frasers Commercial Trust (FCOT)
9. Suntec REIT
10. Keppel REIT (formerly K-REIT)

An advance distribution from First REIT was paid out on 26 December because of a private placement and this bumps up (and distorts) total income received in 2012 from S-REITs a bit.

Overall, despite some divestments to lock in capital gains, my larger investments in Saizen REIT (due to aggressive buying as its unit price plunged middle of the year) and LMIR (due to aggressive buying of nil-paid rights a year ago) resulted in higher total income from S-REITs this year.

Total income received from S-REITs for the year 2012:
S$ 123,873.80

In the year 2013, with regards to S-REITs, I will fill my war chest while waiting for potential rights issues as well as opportunities to buy more at lower prices.

With First REIT having made an advance distribution, I could receive less income from the REIT in 2013. There is also possible dilution of DPU from First REIT's private placement. The DPU dilutive actions of LMIR this year and the weakening JPY which should impact income from Saizen REIT in S$ negatively would all put some downward pressure on my total passive income from S-REITs in 2013.

Definitely, it is almost impossible now to get a 10% or even a 9% distribution yield from S-REITs. We could in fact continue to see yield compression as central banks around the world are bent on increasing monetary supply.

Any correction in the unit prices of S-REITs would probably see opportunistic buying as they remain a compelling proposition in the current low interest rate environment. Sentiments having turned decidedly positive on S-REITs. Mean reversions could become less probable.

To all readers on the same journey to passive income generation, this has been a very good year for our portfolio of S-REITs.

Congratulations!

Related posts:
1. 2011 full year passive income from S-REITs.
2. $120K annual passive income from S-REITs next?
3. Saizen REIT: Why did I buy and would I buy more?
4. Staying positive on S-REITs.
5. Made and still making money from S-REITs.
6. REITs: When to buy?
7. Never lose money in real estate and REITs?

Saizen REIT: Refinancing expenses reduced net income.

Saizen REIT reported a 70.5% decline in quarterly net income from operations. What investors in Saizen REIT should be concerned with is the permanence of the decline.

Saizen REIT saw a 2% increase in gross revenue, quarter on quarter, but a 15% increase in operating expenses and this led to NPI reducing 3.3%. If the higher operating expenses are the new norm, then, expecting a marginal decline in future DPU makes sense.

The biggest blow comes from "other operating expenses". This saw a 7.5x increase. This was what led to such a big decline in quarterly income from operations. However, remember that this is a one off event.

Basically, Saizen REIT terminated certain loans to refinance under better terms and to extend maturities. Although with the early terminations came hefty costs, bearing in mind that these are one time costs, the REIT has emerged stronger from the refinancing efforts. Why?

1. The cost of refinancing will be recovered in less than two years from interest savings achieved from new lower interest bearing loans.

2. The higher loan to value ratios of the new loans lead to more possibilities in debt funded acquisitions which will up income and, most probably, DPU too.

3. The earliest maturity date of Saizen REIT's loans is now in February 2018.

The pain that comes from such a large decline in quarterly net income from operations will pass because the costs that come from refinancing are a one off event. However, the benefits of the mentioned refinancing are longer lasting and will benefit anyone investing in Saizen REIT for income, all else remaining equal.

A pertinent question would be how the weaker Japanese Yen is going to impact valuation in S$ terms. NAV/unit of JPY18.69 means 22.86c in S$ terms today. So, the REIT is still undervalued, trading at under 20c per unit. However, this is less so than a year ago.

In the absence of yield accretive acquisitions and further improvement in occupancy which has improved to 92.2% on average, it is reasonable to expect DPU to be affected negatively. However, I sense more acquisitions in future and with higher average occupancy too.

Investing in Saizen REIT is buying into a conservatively leveraged play on Japanese residential real estate and a conviction that the Japanese economy will see better days ahead. With the JPY much weaker than the S$ these days, anyone investing for income should temper their expectations in terms of DPU in S$ terms.

See Saizen REIT's 3Q 2013 results: here.

Related post:
Saizen REIT: DPU 0.66c.

$50k in annual passive income: Year end status.

The last time I wrote about my attempt to achieve an annual passive income of at least $50k was on 5 Sep when I concluded that "With Saizen REIT's contribution, I would probably exceed the target I have set for myself which is "to create a minimum of $50k in annual passive income from investments in the stock market alone."  I shared this aim here in my blog on 27 Feb 2010, more than half a year ago. Like with everything, however, this needs confirmation. Let us see what happens in December 2010." Read blog post here.

For quite some time now, my focus has been on my top three investments when I talk about building a reliable stream of passive income from the stock market.  They are Saizen REIT, AIMS AMP Capital Industrial REIT and LMIR.

One of my friends told me that this is inaccurate since I do not include dividends received from my other investments in the stock market such as First REIT, Suntec REIT and SPH. I must admit that I have not been fastidious that way. However, my investments in other counters are so dwarfed by my top three investments that, for the sake of simplicity, I have excluded them. Also, funds from the complete divestment of CitySpring Infrastructure Trust and Cambridge Industrial Trust as well as the privatisation of Hyflux Water Trust have largely been redeployed to AIMS AMP Capital Industrial REIT and Saizen REIT.

So, for this blog post, again, I will just focus on my top three investments to see if I have managed to hit the said target. I don't think we need to wait till December to see how things will turn out since both LMIR and AIMS AMP Capital Industrial REIT have declared their final distributions for the year.

Saizen REIT

Saizen REIT's next income distribution is in March 2011. I overlooked the fact that this REIT pays half-yearly. So, without any contribution from Saizen REIT in December, I would probably not be able to hit the $50k target this year.

Also, my estimate of an annualised 1.6c DPU for Saizen REIT was somewhat optimistic earlier in Sep and it was partly premised on the successful re-financing of YK Shintoku. A more realistic annualised DPU is probably about 1.2c if YK Shintoku's loan was refinanced successfully sooner than later. This is after learning at the AGM that continual divestment of properties in YK Shintoku is necessary in order for refinancing to be viewed more favourably by potential lenders. For me, this means a reduction of 25% in estimated passive income from this investment.

Needless to say, such a reduction is not helpful towards achieving the annual passive income target I have set but in absolute dollar terms, I still expect this REIT to contribute a lion's share of my passive income for 2011.

Read my comments here.

AIMS AMP Capital Industrial REIT

This REIT had a successful rights issue recently which made its existing unitholders somewhat richer. I was very pleased with the rights issue and I have not sold any of my rights units exercised at 15.5c as they will enjoy a yield of 13.4% in 2011 when the annualised DPU of 2.08c kicks in. Of course, trading at 22.5c a unit now, I have a handsome 45% capital gain (on paper) for these rights units as well.

However, the last income distribution came in weaker at DPU of 0.3968c. In my blog post of 29 Oct, I said, "This is because of the issue of 513.3 million rights units on 14 October 2010 and 7.2 million units to the Manager on 19 October 2010 for payment of the acquisition fee in relation to the acquisition of 27 Penjuru Lane. Distributable income from 27 Penjuru Lane would be included in the next distribution, not this one, since the acquisition was done in 3Q FY2011 and not in 2Q FY2011."  Read blog post here.

Of course, this does not change the fact that the lower DPU this time round (payable in December) is not going to help me hit my passive income target this year.


LMIR

Although I am still somewhat disappointed with the management, this REIT is a stable passive income generator. Their latest DPU of 1.09c is marginally higher than the previous quarter's 1.04c.  This is largely in line with my expectations, that "I expect the S$ to appreciate more robustly in future and it is unlikely that the DPU would reduce much more.  Conservatively, I estimate the DPU to be 1c per quarter or 4c per year from December 2010." Read blog post here.

Obviously, at a more conservative estimate of 4c DPU per annum, this is 20% lesser than the 5c DPU I was expecting at the start of the year.

So, based purely on these three investments, I have come up short this year with regards to my annual passive income target in the stock market.

Important development:

Recently, I have been buying more units of First REIT with a view that their recently announced acquisitions and rights issue are attractive propositions which would provide a distribution yield of 9% in 2011. Including the rights which I am entitled to and which I fully intend to accept and pay for, First REIT would rival LMIR as my third largest investment in the stock market.

So, from 1 Jan 2011, I will include dividends collected from First REIT in my calculations towards the target of $50k in annual passive income. I will continue to share my results here in my blog. Wish me luck.

Related posts:
$50k in annual passive income.
First REIT: Rights issue.

Saizen REIT: Why did I buy and would I buy more?

There are so many ways to look at an event.  

Some might look at it positively and some might look at it negatively. 

Some might jump for joy and some might break out in cold sweat.

All of us have imperfect knowledge and what we think is reality very often is enough to push us into action. 

Of course, what we think is reality might not be reality and those who are eventually proven right might just have been lucky.






What is all this rambling leading to?

The recent weakness in Saizen REIT's unit price has been a source of concern or interest, depending on where we stand. 

Personally, I am not concerned. 

I am more interested. 

I also hope that I know Saizen REIT a bit better than most.

When I last blogged about Saizen REIT, its unit price had declined to 13.6c. 

That was already a 10% decline from its high of 15c a unit just a few weeks ago. 

In that blog post, I presented some numbers and asked that interested parties decide for themselves if 13.6c was a good enough entry price.

Well, I added to my long position yesterday at 12.8c to 13.1c a unit. 

Taking in the dilutive effect of the warrants, buying at these prices would give me distribution yields of 8.24% to 8.44%, all else remaining equal, which I believe to be rather attractive for freehold residential properties in Japan.

Some might even say that buying at these prices is similar to buying right after the triple disasters early last year when the REIT was sold down to 13c a unit. 

Is the REIT in a situation which is similar to last year's panic? 

Is a low of 12.7c per unit justified by worsening fundamentals? 

(This is really a rhetorical question since, often, there would be a mismatch between price and value.)





Well, the warrants outstanding, if fully exercised, would have a 12% dilutive effect on distribution yield, everything else remaining equal. 

However, the REIT is now without the problem it had with YK Shintoku back in early 2011. 

The REIT is currently in possession of a much stronger balance sheet and looks set to grow its DPU over time.

So, buying more of Saizen REIT now at 13c a unit has less uncertainty compared to buying at 13c in the aftermath of the triple disasters last year. 

Less uncertainty perhaps but what about value? 

Is buying at 13c now the same in value as buying at 13c back then?

The Palms Denenchofu, Tokyo. Acquired on 30 March 2012.

The NAV/unit now, taking into account the dilutive effect of the warrants would be 31c . 

This value, actually, has not changed since March 2011. 

Although it is good to know that we would still have the same value of asset backing each unit we purchase, we are really investing for income here and are not after discounted assets per se. 

What about its DPU?

With gearing, adjusted for warrants, reducing from 28.3% to 21%, the REIT has more resources to increase DPU through yield accretive purchases. 

Its DPU looks likely to be higher in future than not, all else remaining equal.

Would I buy more? 

I would continue to accumulate units of Saizen REIT next week if it should trade at 13c per unit or lower.




Related post:
Saizen REIT: To buy or not to buy.

Republished in NextInsight as:
Saizen REIT: Buy more of the REIT or no?

Saizen REIT: CEO bought more warrants.

Saizen REIT's CEO, Chang Sean Pey, bought 197,000 warrants today from 7c to 7.5c a piece. Persistent insider buying remains a characteristic of Saizen REIT.  This REIT is probably one of the most undervalued ones currently available in the Singapore stock exchange.

Successfully refinancing YK Shintoku's CMBS in future remains the strongest possible catalyst that would give Saizen REIT's units a lift up in price. Refinancing to bring down the current punitive interest rate of 7.07% to a more reasonable level would greatly improve the EPS of the REIT and, therefore, the DPU.

If the recent successful refinancing of the loan provided by Societe Generale for GK Choan, which attracts an interest rate of 3.8275% throughout its three-year term, is anything to go by, we could see the interest rate for YK Shintoku's loan in the region of 4% once it is successfully refinanced.  This would save 3.07% on interest payment for Saizen REIT's largest loan in its portfolio.  That would represent savings of about JPY200m a year!

The skies are clearing up for Saizen REIT and, at the moment, I do not see any storm cloud for the REIT apart from YK Shintoku's CMBS which I feel confident would dissipate in the coming months.

Other than the JPY 7.1 billion (S$108.6 million) loan of YK Shintoku (which is currently in maturity default) and the JPY 0.45 billion (S$6.9 million) loan of GK Chosei, Saizen REIT has no further loans that are due to mature in the next two financial years. This will allow the Management Team to focus on the refinancing of the loan of YK Shintoku.

Related posts:
Saizen REIT: Refinancing of loan from Soc. Gen.
Replies from AK71: All things Saizen REIT.

Saizen REIT: A special dividend?

Argyle Street Management, which holds 8.9% of the REIT, said the REIT had 4.86 billion yen (S$61 m) of cash. That figure amounts to 23.5% of the REIT’s market capitalisation as at 29 October 2013. Argyle wants the REIT’s manager, Japan Residential Assets Manager (JRAM), to consider distributing a significant portion of its cash balance to shareholders through a special dividend.
(Source: The Business Times)

Regular readers know that I like Saizen REIT. I got interested in it during the GFC when it was unloved and I have been blogging about it ever since the early days of ASSI. Some might even say that I know the REIT like a friend. Although friends don't give us money regularly, this one does and if Argyle gets its way, I could be getting a bit more.

What do I think of the proposed special dividend?

Well, if it happens, it is a return of capital. Why do I say this? This is not from higher income or earnings. This is to have excess capital returned to unit holders if the REIT's management is unable to find better use for the money.

Actually, for anyone who has been following developments at the REIT, the management had used the money to buy back units from the open market and made a few DPU accretive purchases as well. I like their cautious approach as they don't seem to be buying buildings indiscriminately. Going on a shopping spree would, of course, fatten their pay checks. It is to their credit that they did not do so.

If a capital reduction exercise should happen, Saizen REIT would have less money on hand for any potential DPU accretive purchases. This means that the management would have to use a blend of equity and debt to fund such purchases in future. So, it would be back to square one for unit holders.

However, I should not complain if I am going to be paid money, should I? Better in my bank account than others' or so some would say.

One reason why I am invested in the REIT is because it is grossly undervalued. Depending on the exchange rate we use for the JPY to S$, the REIT was trading at a 20% to 25% discount for much of  2013.

The warrants exercised in the middle of 2012 strengthened the balance sheet of the REIT considerably. The REIT, already undervalued then by some 40%, was made more so because of that.

So, for those who exercised their Saizen REIT warrants back then, they would be taking back some of their own money if a return of capital should happen.

For those who bought into the REIT at a relatively large discount to valuation and who had no warrants to exercise before they expired, they should be grinning broadly as they would be taking some of other people's money with a margin of safety to boot.

Having said this, special dividend or not, Saizen REIT has been a good investment for me and it is likely to get better in the years ahead if Mr. Abe's policies gain traction.

Related posts:
1. Fukushima and investing in Japanese real estate.
2. Saizen REIT: Risk free rate and unit price.
3. 9M 2013 income from S-REITs and more.

A minimum of $50k in annual passive income.

Anyone who has been reading my blog would know that I seek to build a strong stream of passive income through my investments in the stock market. On 29 May 2010, more than three months ago, I mentioned that "between LMIR and AIMS AMP Capital Industrial REIT, the annualised income distributions I receive could be as much as 4x my monthly salary".  In aggregate, this has not changed.  However, I have made some changes in allocation and shifted funds from LMIR to AIMS AMP Capital Industrial REIT.  This is because I am a little disappointed with the former and at the same time, I am feeling more optimistic about the latter.

In my post of 29 May 2010, I also said that "things should get better from here as from the month of September, income distribution from Saizen REIT would add to my passive income stream. I might just stop trading the market and sit back, relax and let the passive income stream in.  Of course, it remains to be seen if my calculations as to Saizen REIT's potential income distribution would come to pass."

I was pretty confident that things would go the way I think they would but we can never be too sure of anything. As things turned out, happily, Saizen REIT's results and DPU were better than expected.  It seems that their CEO is much more astute compared to LMIR's and did not engage in any 100% currency hedging.  To recapt, "LMIR announced a DPU of 1.04c payable on 27 August 2010.  This is lower than the 1.2c paid in the last quarter. This is due to a higher realised loss on the foreign exchange forward contract."

I did some back of the envelope calculations as to the passive income I would be receiving from my investments in Saizen REIT, AIMS AMP Capital Industrial REIT and LMIR in future:

Assuming that all of Saizen REIT's warrants are converted to regular units and assuming that YK Shintoku's CMBS is successfully refinanced with a conventional bank loan with an interest rate of about 4%, I estimate the DPU to be about 0.4c per quarter or 1.6c per annum from December 2010.

As for AIMS AMP Capital Industrial REIT, with the impending rights issue, I would probably increase my investment in the REIT by at least a third and enjoy a higher yield at the same time.  This would increase the amount of passive income I receive from this REIT from December 2010.  DPU is estimated at 0.52c per quarter or 2.08c per annum.

For LMIR, although I believe in the strength of the Indonesian economy and the strength of its currency, the management's decision to continue using foreign exchange forward contracts is likely to limit any DPU growth.  In fact, it has led to a DPU reduction in S$ terms so far as the Rupiah strengthened against the S$.  However, I expect the S$ to appreciate more robustly in future and it is unlikely that the DPU would reduce much more.  Conservatively, I estimate the DPU to be 1c per quarter or 4c per year from December 2010.

With Saizen REIT's contribution, I would probably exceed the target I have set for myself which is "to create a minimum of $50k in annual passive income from investments in the stock market alone."  I shared this aim here in my blog on 27 Feb 2010, more than half a year ago. Like with everything, however, this needs confirmation. Let us see what happens in December 2010.

Related posts:
Create more passive income with limited capital.
LMIR: DPU reduced 20%.
AIMS AMP Capital Industrial REIT: Steady performance.
Saizen REIT: Better than expected DPU.
Seven steps to creating passive income from the stock market.

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: Rewarding patient investors.

Today, a reader asked me at what price would I sell my investment in Saizen REIT. It was a difficult question for me to answer because I don't really have any intention to sell my investment in the REIT. Well, at least not now. For reasons I have shared before, I believe that this REIT is a sturdy investment for income.

A small apartment: 452 square feet in area.

Of course, I could consider selling if the valuation starts to look rich. However, with its current NAV/unit at $1.17, even at the high of 98c a unit touched today, Saizen REIT's units still look inexpensive. So, do I think that unit price will continue to go higher? I really do not know whether prices will continue to climb a wall of worries but I do know the value backing each unit.

I am also reasonably sure that the REIT will continue to do well, operationally and financially. Operationally, the REIT has a very good track record. Financially, its balance sheet is strong and with its loans being amortising in nature, everything else remaining equal, it will only become stronger.

Developments in Japan suggest that real estate in the country will do much better and Saizen REIT is a natural beneficiary. I would like to share a couple of articles here which I read in recent days:

"House prices are expected to continue rising in 2014, given that the government is expected to inject an additional stimulus package in the second half of this year. Moreover, Tokyo’s successful bid to host the 2020 Summer Olympics is expected to boost property demand and the construction sector over the next 7 years." Read article: here.

"The top five property markets in 2014 are Japan's Tokyo, China's Shanghai, Indonesia's Jakarta, Philippines' Manila and Australia's Sydney, PwC found.

"PwC said a huge spike in demand for Japanese property had propelled Tokyo to the top spot, following a five-year absence from the top rankings. The sudden increase in popularity is due to the government's radical economic stimulus plan, which has resulted in a flurry of purchases in anticipation of higher prices, PwC said.

"As well as Tokyo, secondary cities in Japan, including Osaka, Fukuoka and Sapporo are also proving popular." Read article: here.

Saizen REIT has almost 140 residential buildings in Japan. Out of these, 4 are in Tokyo, 11 are in Fukuoka and 35 are in Sapporo. Buying any of these buildings is likely to make a better investment than buying an investment property in Singapore now. However, the good news is that we do not have to raise funds to buy an entire building, we could own a share by being unit holders in Saizen REIT.

I believe that things are increasingly looking up for Saizen REIT and investors with enough patience will be rewarded in due course.

Related post:
Saizen REIT: Undervalued and possibly more so.

Saizen REIT: Long-term BUY

A nice and cool Sunday morning.  Woke up early, did the laundry, had a drink and surfed the net for news as usual.  When I visited Next Insight, I got a nice surprise.  Saizen REIT, which has not attracted any analyst coverage in a long time, received coverage from NRA Capital. 

Regular visitors to my blog would know that I am still actively accumulating units in Saizen REIT.  I have written extensively about the REIT and I have also received readers' comments in affirmation as well as cautionary advice.

Even though I believe that my FA of the REIT is thorough and my continuing accumulation of units in the REIT is sensible, it is, dare I say, bracing to hear from more professional quarters.

I remember saying that even if the YK Shintoku portfolio suffers foreclosure, Saizen REIT is still a buy as it would still be severely undervalued.  That is why when a friend told me that his father does not like the management's seemingly cavalier attitude towards this matter, I told him that it is not a big issue and that the management has good reasons to be less worried about it.

"Assuming a conservative stance and based on the assumption that the JPY7.25b CMBS loan encumbered with JPY9.10b worth of assets will be foreclosed eventually, using DDM, we value Saizen at 24.5 Scts (previously 24.3 Scts) and arrive at a target price of 17.0 S cts as previously, maintaining our discount to valuation of 30%." 

"News flow of new credit access is expected to lift valuations to 32.3Scts and a target price of 22.5Scts (based on the same 30% discount rate), providing catalyst for further upward re-rating of Saizen."

Written by Angeline Phua (NRA Capital) .
SAIZEN REIT: Fair value 17 c, long-term buy , please read it here.

Just like my earlier investments in Healthway Medical and some other companies before I started this blog, I believe that accumulating shares in good companies before everyone else is interested in them is one of the best ways to greater capital gains. Well, in the case of Saizen REIT, we are accumulating units.  Good luck to fellow unitholders and have a good Sunday.


Related posts:
Buy Japanese real-estate.
Passive income with high yields: Saizen REIT.
Saizen REIT's quarterly report.

Saizen REIT: A symmetrical triangle?

On 23 Feb, I had a post titled: "Saizen REIT: Obvious uptrend."  In that post, I said, "... given the trend of the longer term MAs, the downside is very limited from current levels. Any upward push in price will meet with initial resistance at 17c and if this is overcome, the recent high of 18c might be tested..."

Well, the initial resistance of 17c was not overcome.  In the last session, Saizen REIT closed at 16.5c after touching a low of 16c, forming a dragonfly doji. OBV is flat which suggests a lack of significant distribution or accumulation.  The MFI has dipped into oversold territory.  MACD's sell signal has not been reversed.  Lethargy is a signature of Saizen REIT's price action.

I have drawn a trendline resistance connecting recent highs and a trendline support connecting recent lows.  What looks like a symmetrical triangle took shape with its apex sometime in April.  Symmetrical triangles are not the most reliable patterns in charting but, if valid, a price action in the prevailing trend is not far off.  In this case, the trend is UP.  The ascending MAs make this quite obvious.

My decision to accumulate Saizen REIT from 13c to the current price is informed by a thorough FA with the understanding that it is terribly undervalued. Even if the REIT's portfolio of YK Shintoku were to be foreclosed and even after all the warrants are converted into regular units, Saizen REIT would still have a NAV of 29c per unit. At 16.5c, it is still a good 43% discount to NAV. I have blogged about this quite extensively and shan't dwell on the fundamentals too much in this post but I will say this again, "Think contrarian!"

A video interview with Marc Faber (Posted Mar 12, 2010 07:30am EST by Peter Gorenstein):



"If you are going to put money to work in stocks both market watchers think Japan is the place to be. After a 20 year bear market and despite high-debt-to-GDP levels, the pair think the market has become too cheap to ignore. Always a contrarian, Faber believes the lack of interest in Japanese stocks makes it one of the most compelling buys in the world. "

Related posts:
Saizen REIT: Obvious uptrend.
Passive income with high-yields: Saizen REIT.
Japan's debt issue and Saizen REIT.

Saizen REIT: Sanity prevails with more good news.

Since starting my investment in Saizen REIT in the later half of 2009 at a price of 13c/unit, the REIT gained in market value and I also received income distributions from the REIT twice. However, the totally unforeseen triple disaster of earthquake, tsunami and the following nuclear power plant crisis wrecked a steadily improving picture.

As I was consistently buying more units in the REIT, to say that I was not in the least mentally or emotionally affected would be untrue. Some were asking me to dump my investment in the REIT, painting horrific images. Some left comments in my blog with words to the same effect and more. Also, news that countries around the world were asking their citizens to leave Japan (due to perceived radiation risks) didn't help.

However, throughout the crisis, I tried to stay calm and rational and, by my own standards, I did it fairly well. I analysed the situation early on and came up with a worst case scenario which suggested that at 13c/unit, the REIT was oversold by panic stricken investors. I stood by my analysis and the fact that insiders were buying reinforced my belief that the unit price was at a floor, if not the bottom.

I could stay calm and rational partly because I was not using any borrowed money or money which I would need in a hurry elsewhere. That we should never invest using borrowed funds or funds needed in the near future is an important principle for all investors.

Some friends would say that I have an added advantage of sitting on a thick cushion of investment gains and dividends accumulated since late 2009. This is, perhaps, true, since at the back of my mind, I knew that I would not be losing any of my capital in the crisis even if the unit price were to weaken further.

The REIT's fundamental and technical pictures have altered somewhat due to the disasters. These changes, I mentioned in an earlier blog post. Read it here. As an investor, we must not be stubborn and I recognise the new reality for what it is and decided to reduce exposure to the REIT when the time is right. When would this be? I have mentioned in a few blog posts that 15c would be the resistance to watch as the gap closes.

Divesting my investment in Saizen REIT partially when it tested and broke support turned resistance at 15c today was something quite mechanical for me. It was the thing to do and I did it. I am not one to be married to my investments.

What does this say about me? I never like selling at supports or what I perceive to be supports. Even in a downtrend, prices would go down a river of hope and selling in rebounds and, hopefully, at resistance is the thing to do.

Does the partial divestment of my investment in Saizen REIT mean that I am turning my back on the REIT? No. I have not closed my position in the REIT, merely lightened it. I remain vested and might even add to my position if the unit price should weaken once more.

Although the partial divestment has erased some of my investment gains, my overall portfolio remains in the black and my capital is intact. Rebuilding my investment gains means that the game is once again afoot.

Oh, if you are wondering what the good news for Saizen REIT is, they have announced a plan which could possibly see YK Shintoku, the last portfolio with a CMBS, unencumbered by end of May 2011. Details? I am going to be lazy here. Please read the announcement here.

Related post:
Saizen REIT: Staying calm and rational.

Saizen REIT's quarterly report

Saizen REIT closed flat at 16c even though its quarterly report is encouraging. Whether it is because investors want to have more clarity as to exactly when distributions would resume or how much would the quantum of the distributions be, I do not know.  It might also be a lack of interest in the counter due to a paucity of coverage by analysts or perhaps they are waiting for an upgrade by the rating agencies. Suffice to say that this might be a blessing in disguise as I would have more time to accumulate more units in this deeply undervalued REIT.

The following is from Saizen REIT's report this morning:

Property operations of Saizen REIT had remained stable in 2Q FY2010. Gross revenue  decreased by 3.1% in 2Q FY2010 as compared to 2Q FY2009, due mainly to the divestment  of five properties (four properties in 1Q FY2010 and one property in October 2009) as well as a slight decrease in rental rates of new contracts entered into after 2Q FY2009.


The increase in other trust expenses by JPY 6.1 million in 2Q FY2010 was mainly due to accruals for valuation fees. No valuation fees were accrued in 2Q FY2009. The loss on divestment of properties of JPY 10.1 million comprised net loss incurred on the divestment of one property in 2Q FY2010. The fair value loss on financial derivatives of JPY 401.7 million comprised mainly fair value losses on warrants of JPY 389.0 million, which arose due to the increase in market-traded price of the warrants.


Notwithstanding the the repayment of the loans of YK Kokkei and YK Shingen which resulted in interest savings, interest expenses increased mainly due to the increase in interest rate on the loan of YK Shintoku from 3.07% to 7.07% after its maturity default......
 
.....The loans of YK Kokkei and YK Shingen, amounting to JPY 5.4 billion (S$82.3 million), were fully repaid in 2Q FY2010. Pursuant to an agreement between YK Keizan and its lender on 25 January 2010, JPY 950.0 million (S$14.5 million) of its loan was partially repaid in January 2010, with the balance of JPY 586.3 million (S$8.9 million) to be repaid in April 2010. Save for the balance of this loan, which is expected to be be fully repaid with internal cash resources, Saizen REIT has no further loans maturing in FY2010.


Saizen REIT currently has an aggregate of approximately JPY 16.0 billion (S$243.9 million) of properties which are unencumbered. By the end of April 2010, it is expected that the properties of YK Keizan, which are valued at JPY 2.75 billion (S$41.9 million) will be unencumbered after the loan of YK Keizan is repaid.


The Management Team observed that the financing environment in Japan has stablised. With portfolios of unencumbered properties, relatively low overall leverage and the listing status of Saizen REIT, the Management Team is hopeful of making progress in securing new financing.


In respect of the maturity default of the JPY 7.253 billion (S$110.6 million) loan of YK Shintoku, the loan servicer is currently conducting a review of the properties in the YK Shintoku portfolio. The Asset Manager is working closely with the loan servicer on its review and proposed course of action.


Property operations are expected to remain stable in the remaining periods of FY2010. As previously announced, it is expected that Saizen REIT will start accumulating cash for distribution in the last quarter of FY2010, and will resume distribution for FY2010 which is ending on 30 June 2010.

Related posts:
Passive income with high yields: Saizen REIT
Buy Japanese real estate

V2EDNMFSHXH3

Email exchange with a reader on some REITs.

I have been receiving more emails from readers in the last few weeks. Although I try to answer all of them in a timely manner, it might get harder to do so in time. So, apologies in advance for late replies.  

Having said this, certain emails posed questions to which the answers could be found in my blog. Just use the Search function at the top of my blog and chances are you would find the answers. Thanks for helping me to help you. :-)

Here are some bits from an email exchange I had with a reader recently on certain REITs which might be of interest to some of us:

Reader (R): 

I was wondering about Saizen, with the price at 16.5c now.. is it still feasable to enter or is it too high? 

AK:

Saizen REIT? Well, at 16.5c, I am still not a seller but I am not a buyer too as I am already vested. If I were not vested in the REIT now and if I am happy with a 6.5% yield on freehold Japanese properties, I would buy some first. That's just me. Disclaimer applies.

R:

Hey ak very sorry i have so many questions :) May i know how the 6.5% yield for saizen reit is calculated? Thanks. Appreciate it.

AK: 

See this blog post for details:
http://singaporeanstocksinvestor.blogspot.com/2010/11/saizen-reit-1q-fy2011-results.html

R:

Hey thx!! Yea saizen would be more affordable for me than first REIT.. Which is stronger from ur point of view? Thx :)

AK:

Stronger? Hmm.. They are in two different sectors and countries. Cannot compare. They have different benefits and risks.

R:

Also, Another small question would be, do you think that the jpy/sgd exchange rate will affect the earning numbers for saizen reit in the near future?

AK:

I expect the JPY to stay strong against major currencies in the near future. Over a longer period, it is harder to say. Stay nimble.

R:

I see, i agree with that, lets say i have 10k investable assets atm how much would u say i put into reit?

how much of each reit do you own? Im really interested in Saizen and Aims but im not too sure which would be better.

AK: 

If you have $10k in cash and it is money you do not need in the next few years, you could consider putting all of it into REITs if you are after a regular income.

Saizen REIT is my largest investment although its distribution yield is estimated at only 6.5%. This is because I think the Japanese real estate market has limited downside from here and things would get better very soon.

It is also because the properties are freehold in nature. So, they are perpetual income generators. Once the last CMBS is refinanced, it would probably lead to an upgrade by rating agencies and we could see some capital appreciation too. It should trade at a 5% distribution yield in line with most REITs in Japan which means there could be a 20% upside in unit price.

AIMS AMP Capital Industrial REIT is my second largest investment. Its forecast DPU for 2011 is 2.08c.  At the current unit price of 22.5c, distribution yield is a nice 9.24%. This could possibly explain partially the recent buying interest. Many pension funds are invested in this REIT. These are long term investors and provide stability to the REIT's price. 

However, we have to remember that the REIT is invested in relatively short term leasehold properties in Singapore (where most industrial properties have land leases of 30 years). The REIT has to continually renew its leases but this could take the form of acquisitions to keep the average lease of its portfolio healthy. More fund raising? Yes, I think so. 

So, the yield of 9.24% is not real and we have to give some of that back. However, comparing apples with apples, if Sabana REIT is able to price its IPO at $1.05/unit which means a yield of 8% or so, we could see AIMS trading closer to an 8% yield eventually and this means there could be a 10% upside in price.

I would not put all my money in a single REIT or in any one single company. That is risky. You have to decide how much you would put in each. Good luck.