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.