Saizen REIT

Personally, i think there is little hope in the management of saizen riet.

I used to be vested in this reit. At one point, it was selling its properties to deleverage to relieve itself of some defaulted morgan loans (if i remembered correctly). After the loan was cleared, i still held on to the reit and trusted the managers wholeheartedly. Then, they did an outrageous thing. They took on more debt to buy properties. I sold all my shares.

If you look at the big picture, dont you see that it is repeating history. Use leverage to buy properties (the managers get commision for doing so), when economy turns bad, start selling the properites (of course they will tell u they are selling properties that generate less yield and they earn a commision again) to deleverage, when economy recovers, start taking up loans to buy properties (earn commision again). History is repeating itself again

(30-04-2012, 12:20 AM)money Wrote: Personally, i think there is little hope in the management of saizen riet.

I used to be vested in this reit. At one point, it was selling its properties to deleverage to relieve itself of some defaulted morgan loans (if i remembered correctly). After the loan was cleared, i still held on to the reit and trusted the managers wholeheartedly. Then, they did an outrageous thing. They took on more debt to buy properties. I sold all my shares.

If you look at the big picture, dont you see that it is repeating history. Use leverage to buy properties (the managers get commision for doing so), when economy turns bad, start selling the properites (of course they will tell u they are selling properties that generate less yield and they earn a commision again) to deleverage, when economy recovers, start taking up loans to buy properties (earn commision again). History is repeating itself again

I do not see it as repeating history. Why Saizen need to sell properties earlier is because its loan went into 'default' mode and the interest on the loan went much higher. And, the market for commercial loan paper dried up. Saizen needs to sell properties and pays up the loan quickly so as to get rid of the punishing interest.

Personally, I will be disappointed if Saizen did not take on more debt and buy yield-acretive assets.

The risk is low - residential asset occupancy does not fall very much during recession. And, the loan and the revenue are of the same currency. Banks are likely to roll-over the debt (perhaps at slightly higher interest) during recession.

The upside is higher dividends and hopefully higher share price.

If i understand correctly, the loans this time is from local banks which are easier to manage during crisis. That time during the crisis credit crunch, the loan is from a different market which are less flexible.

Bank of Japan is now printing money like nobody's business. This is really good for Saizen REIT

saizen should look into buying business hotels in japan to invest then giving to somebody to manage like what ipc corp is doing.

(vested)

(30-04-2012, 02:29 PM)sgd Wrote: saizen should look into buying business hotels in japan to invest then giving to somebody to manage like what ipc corp is doing.

(vested)

perhaps saizen cant do that, afterall, it is a residential reit, not sure if it can venture into hotels like that

"Distributable income from operations as at the end of 3Q FY2012 was JPY 17.8 million (S$0.3million1) as compared to JPY 187.2 million (S$2.9 million) as at the end of 3Q FY2011. The decrease was mainly due to loan amortisation and one-off refinancing costs. As in the case of Saizen REIT’s previous distribution, these can be offset by undeployed loan proceeds, and are not expected to affect semi-annual distributions." - Excerpt from page 2/19, The Unaudited Financial Statements For The Third Quarter Ended 31 March 2012.

This means withheld cash would be used to offset the one-off refinancing costs? And the payment toward loan amortisation can now be offset with the withheld cash as well to pump up the DPU?

Another financial statement in question: (Page 3/19)

Net income from operations in 3Q FY2012 : JPY 261,028,000
S$ 4,163,000 - 5. Based on S$/JPY average exchange rate of 62.7 between 1 January 2012 and 31 March 2012.

The non-audited statement closed on 31st March 2012, so should take the unbiased exchange rate of 65.5 as at 31 March 2012 instead of 62.7; a factor of 1.0447. Also, and after factoring in the dilution of 1.0746 (1,270,493,808/1,182,249,611), the net income from opreation from operations in 3Q FY2012 should be:

JPY 261,028,000 / S$ 3,985,160 / 0.31 cents in SGD per unit with 1,270,493,808 units

Net income from operations in 2Q FY2012 :
JPY 323,252,000 / S$ 5,379,000 / 0.45 cents in SGD per unit with 1,182,249,611 units

Its 3Q FY2012 net income from operation on closing date of its financial report, as compared with 2Q FY2012 in SGD has in fact decreased by 31% per unit.

Consider the payment toward loan amortisation is fixed, and in fact has increased slightly, its distribution per unit with 3Q FY2012 net income from operation should be significantly reduced and only the REIT management know the figures. If so, and with further dilution from the exercising warrants by 2H2012 , the semi-annual DPU should be very significantly lesser than 1H2012; the 8.53% annual yield as reported from 1H2012 results, with its current financial momentum as for 3Q FY2012, its DPU based annual yield should drastically drop in 2H2012 if it is not dramatically manipulated.

(14-05-2012, 03:39 PM)Toku Wrote: "Distributable income from operations as at the end of 3Q FY2012 was JPY 17.8 million (S$0.3million1) as compared to JPY 187.2 million (S$2.9 million) as at the end of 3Q FY2011. The decrease was mainly due to loan amortisation and one-off refinancing costs. As in the case of Saizen REIT’s previous distribution, these can be offset by undeployed loan proceeds, and are not expected to affect semi-annual distributions." - Excerpt from page 2/19, The Unaudited Financial Statements For The Third Quarter Ended 31 March 2012.

This means withheld cash would be used to offset the one-off refinancing costs? And the payment toward loan amortisation can now be offset with the withheld cash as well to pump up the DPU?

...

Consider the payment toward loan amortisation is fixed, and in fact has increased slightly, its distribution per unit with 3Q FY2012 net income from operation should be significantly reduced and only the REIT management know the figures. If so, and with further dilution from the exercising warrants by 2H2012 , the semi-annual DPU should be very significantly lesser than 1H2012; the 8.53% annual yield as reported from 1H2012 results, with its current financial momentum as for 3Q FY2012, its DPU based annual yield should drastically drop in 2H2012 if it is not dramatically manipulated.

The growth story of saizen reit is value destructive. Sell it sell it.

I can see that they are now deploying cash for loan principal repayment. If they have to do that, then why in the first place are they taking up new loan to buy new properties? There is borrowing cost involved for every new loan so this will inevitably decrease the dividends to your pocket. There's also a commision to be paid to the fund manager for every property bought.

Why not stick to a reit with low activity like first reit?

While REITs don't usually do loan amortisation, I was thinking along the lines that Saizen has become "scared" of loaning too much. Either that or banks want more safety measures in lending small REIT operators like Saizen. Both ways, the REIT will approach lower gearing.

It's yield accretive to take a bank loan on an existing unencumbered property to buy another, to rent out at a higher yield than the bank loan. All these do not ask for extra cash from shareholders.

There should be lots of activities these 2 weeks on Saizen given that their warrants are expiring on 1st June 2012.

Expectations:
1) There will be people who sell their mother shares and convert their free warrants at 9 cents.
2) I expect Saizen will do a share consolidation after the warrants expire.

Sold my saizen stake sometime back after Japan election. becoz the govt is advocating yen depreciation. While I did not get to enjoy e run-up to 0.18x, I get better peace of mind since yen is still dropping against sgd.