Saizen REIT

Thanks for the additional data and analysis!

This was my calculations in March:

Scenario 1: No more warrants exercised, no refinancing of YK Shintoku Loan yet
Per annum interest: 0.730 JPY bil
Per annum Net Income: 1.45+0.944-0.73 = 1.66 JPY bil
Number of shares: 1 bil (rounded up)
Net income per share: 1.66 JPY or 0.023 SGD (S$1 to 70 JPY)

Assume 60% dividend payout: 0.0138 SGD or 8.36% at 0.165 SGD
Assume 70% dividend payout: 0.0161 SGD or 9.75% at 0.165 SGD
Assume 80% dividend payout: 0.0184 SGD or 11.15% at 0.165 SGD
Assume 90% dividend payout: 0.0207 SGD or 12.54% at 0.165 SGD
NAV (SG): 40c (0.165 is 58.7% discount to NAV)
Gearing: 36.9%


Scenario 2: No more warrants exercised, refinancing of YK Shintoku Loan at 4% interest rate
Per annum interest: 0.51 JPY bil
Per annum Net Income: 1.45+0.944-0.51 = 1.87 JPY bil
Number of shares: 1 bil (rounded up)
Net income per share: 1.87 JPY or 0.0267 SGD (S$1 to 70 JPY)

Assume 60% dividend payout: 0.01602 SGD or 9.71% at 0.165 SGD
Assume 70% dividend payout: 0.01869 SGD or 11.3% at 0.165 SGD
Assume 80% dividend payout: 0.02136 SGD or 12.94% at 0.165 SGD
Assume 90% dividend payout: 0.02403 SGD or 14.56% at 0.165 SGD
NAV (SG): 40c (0.165 is 58.7% discount to NAV)
Gearing: 36.9%


Scenario 3: All warrants exercised, no refinancing of YK Shintoku Loan yet
Assume proceeds of warrants used to pay YK Shintoku's debts
Per annum interest: 0.549 JPY bil
Per annum Net Income: 1.45+0.944-0.549 = 1.835 JPY bil
Number of shares: 1.5 bil (rounded up)
Net income per share: 1.22 JPY or 0.0175 SGD (S$1 to 70 JPY)

Assume 60% dividend payout: 0.0105 SGD or 6.35% at 0.165 SGD
Assume 70% dividend payout: 0.0122 SGD or 7.41% at 0.165 SGD
Assume 80% dividend payout: 0.0140 SGD or 8.47% at 0.165 SGD
Assume 90% dividend payout: 0.0157 SGD or 9.53% at 0.165 SGD
NAV (SG): 26c (0.165 is 40% discount to NAV)
Gearing: 30.9%


Scenario 4: All warrants exercised, refinancing of YK Shintoku Loan at 4% interest rate
Assume proceeds of warrants used to pay YK Shintoku's debts
Per annum interest: 0.405 JPY bil
Per annum Net Income: 1.45+0.944-0.405 = 1.979 JPY bil
Number of shares: 1.5 bil (rounded up)
Net income per share: 1.32 JPY or 0.0188 SGD (S$1 to 70 JPY)

Assume 60% dividend payout: 0.0113 SGD or 6.85% at 0.165 SGD
Assume 70% dividend payout: 0.0132 SGD or 7.99% at 0.165 SGD
Assume 80% dividend payout: 0.0150 SGD or 9.14% at 0.165 SGD
Assume 90% dividend payout: 0.0170 SGD or 10.28% at 0.165 SGD
NAV (SG): 26c (0.165 is 40% discount to NAV)
Gearing: 30.9%

I looked through the IPO prospectus. It turns out that V-Nee Yeh / Argyle Street Management was present from the start - he / they helped create Saizen REIT to begin with. At IPO, ASM owned over 11%, and the 2 Japan High Yield Funds (managed by the REIT manager) owned 44%.

The 2 High Yield funds have since distributed their holdings to their investors, leaving ASM as the biggest owner. ASM has exercised all its warrants, so we can safely assume that they believe Saizen REIT is worth more than 9 cents on a diluted basis (duh). But 9 cents is a long way off from the current price of 16 cents. So caveat investor.

Today huge sell down / buy up @ 0.155...

Accumulation or Distribution ?

AK71 made the following comment on my blog and mentioned I could share it on this forum


Nick tipped me off regarding the thread on Saizen REIT in valuebuddies too.

The arguments given are mostly conventional wisdom which I am familiar with.

I have talked about the Japanese debt situation and how this has no impact on Saizen REIT before:

Japan's debt issue and Saizen REIT

As for the S$/JPY exchange rate and how the strong JPY is likely to weaken in time, we have to remember that exchange rate is bilateral in nature. The JPY could also weaken if the S$ strengthens.

MAS is allowing the S$ to strengthen in order to contain inflationary pressures. Will it allow the S$ to strengthen much more? If it does, would it not impact our exporters negatively? MAS is likely to be very cautious.

The residential real estate which Saizen REIT is vested in is below replacement cost. This means that no one in his right mind would construct new buildings. The supply side has stalled. The demand for inexpensive accommodation is strong and I have a blog post on this recently.

Asterisk Realty: Advisory for Japanese real estate

Saizen REIT owns freehold properties. Income distribution is therefore perpetual, ceteris paribus.

As for rental rates lowering 4% in Saizen REIT's latest tenancy renewals, how much of its total tenancy were so affected? Would such a trend continue?

The assumption that rental rates would continue to lower in Japan is just an assumption and is something waved around by people who think that Japan is going to the Land of the Dodos.

Jim Rogers is long JPY and believes that it will remain strong. Marc Faber believes that people are so bearish on Japan and have written it off that it is a strong contrarian play. The JPY is still viewed as a safe haven.

In recent months, China's purchase of JGBs caused the Japanese government some concerns. The Chinese recognise the safety of JGBs compared to US Treasuries and have been diversifying away from the latter. As long as there remains a strong demand for the JPY for various reasons, the JPY is likely to stay strong. It's simple economics of supply and demand.

The recent revival of interest in Japanese real estate because of the sector's amazing yield is likely to increase demand for the JPY too. People who want to invest in Japanese real estate must pay in JPY.

It is not wrong to say that the high yield is normal for real estate in Japan but such high yield is not normal for real estate in some other countries, countries in which investors would like to get better returns for their money.

This is a very long comment. Feel free to share it with people in the forum.

Just an update on their financials released early this morning, nothing spectacular and pretty much expected.

Gross revenue, net property income and net income from operations increased by 0.8%, 0.8% and 2.5%. Occupancy dropped 0.4%. Very marginal, more so if appreciation of jpy not taken into account. Refinancing efforts for Shintoku are "on going", they mentioned a formation of a syndication and potential syndicate partners are doing their own internal assessments. So essentially it's still a wait and see :p

Next distribution will be in March 2011.

Extracted from AK71 blog..
http://singaporeanstocksinvestor.blogspot.com/

Saizen REIT's 1Q FY2011 results did not disappoint. Here are the important points:

1. Gross revenue improved quarter on quarter from S$15,536,000 to S$16,274,000 or a gain of 4.75%. This is largely due to a strengthening JPY against the S$.

2. Net property income (NPI) improved quarter on quarter from S$10,205,000 to S$11,389,000 or a gain of 11.6%! This is due largely to a reduction in property operating expenses.

3. Taking away fees and expenses shows net income from operations improved quarter on quarter from S$4,998,000 to S$6,012,000 or a gain of 20.29%!


What I find most bracing about the report is on page 6 which details the distributable income from operations for 1Q FY2011. Distributable income for the period is JPY 204,943,000. This amount could have been 50% higher if not for the amortising nature of Saizen REIT's loans. JPY113,397,000 was used for loan amortisation.

Loan amortisation will reduce funds used in interest payment for the REIT, going forward. This would translate to more funds available for distribution to unitholders in future, everything else remaining constant. There was also a one-off expense of JPY14,976,000 which was incurred due to the refinancing of GK Choan's loan. This is non-recurring. We could, therefore, expect the distributable income for 2Q FY2011 and subsequent quarters to be higher.

Everything else remaining constant, I estimate the distributable income for 2Q FY2011 to be JPY 220,000,000 or 7.4% higher than 1Q FY2011. Total distributable income for 1H FY2011 is, therefore, estimated to be JPY 424,943,000. Number of units in issue now at 1,111,003,000. DPU estimated at JPY 0.38. Based on the rate of S$1 = JPY63.3, it means a DPU of 0.6c in March 2011.

Update on YK Shintoku loan

To-date, YK Shintoku has divested a total of 16 properties (5 properties in FY2010, 5 properties in 1Q FY2011 and 6 properties in October and November 2010) as part a deleveraging plan implemented to reduce the absolute amount of the loan of YK Shintoku and the leverage of the corresponding property portfolio, so as to facilitate refinancing efforts.



The loan of YK Shintoku has been reduced from JPY 7.1 billion (S$111.6 million1) as at 30 June 2010 to about JPY 5.6 billion (S$88.1 million) as at the date hereof. Taking into account applicable cash reserves of JPY 0.6 billion (S$9.4 million) maintained by YK Shintoku under the loan agreement, the net outstanding loan of YK Shintoku amounts to approximately JPY 5.0 billion (S$78.6 million). Several divestments of YK Shintoku's properties are expected in the coming months to reduce the loan amount further.


The amount of S$14.9 million, or approximately JPY 0.9 billion, of warrant proceeds received as at 9 November 2010, have yet to be deployed. Saizen REIT has 328,082,705 warrants which are outstanding and could potentially result in S$29.5 million, or approximately JPY 1.9 billion, of further warrant proceeds being raised1. These warrant proceeds may be applied towards the refinancing of the loan of YK Shintoku (if such refinancing is possible). Saizen REIT also has an aggregate of approximately JPY 12.0 billion (S$188.7 million) of unencumbered properties which can be used as collateral for new loans.

Update on next distribution

Property operations are expected to remain stable, generating steady cash flow to enable Saizen REIT to continue paying out semi-annual distributions. The next distribution payment is expected to take place in March 2011 in respect of distributable cash accumulated in the six months financial period ending 31 December 2010.

unrelated but japanese news. Seems like change and a chance for change is coming to Japan if Japan opens up and it seems like they probably will this will put new interest on investing in Japan again.

http://news.yahoo.com/s/ap/20101115/ap_on_bi_ge/as_apec

By MALCOLM FOSTER and TOMOKO A. HOSAKA, Associated Press Malcolm Foster And Tomoko A. Hosaka, Associated Press , 54 mins ago

YOKOHAMA, Japan . Although Asia-Pacific leaders have committed themselves to achieving a Pacific-wide free trade zone following an annual summit, host Japan may prove a key test case for how realistic that vision is.

Acknowledging that Japan's economic power is declining, Prime Minister Naoto Kan declared his country must open up its markets and embrace free trade , or risk getting left further behind other regional rivals.

"Japan is determined to reopen itself," Kan said at a press conference Sunday that wound up the Asia-Pacific Economic Cooperation forum, alluding to the historic role that Yokohama, which hosted the summit, played more than 150 years ago as one of the first Japanese ports to open up to the West.

That bold declaration represents a change for Japan, which for decades had been ruled by conservative administrations that were reluctant to engage in trade liberalization and were closely tied with farmers who fiercely oppose lowering protective tariffs. Imported rice, for example, is subject to a 778 percent tariff.

Japan and the other 20 members of APEC will face many such tough choices as they strive to execute their shared commitment to free trade and greater regional integration as outlined in the leaders' communique issued at the end of the weekend meeting.

Their overarching goal: To work toward establishing a Free Trade Area of the Asia-Pacific that would envelope all members, from behemoths China and the U.S. to tiny Brunei and New Zealand. Slashing tariffs and other barriers to imports and investments, the so-called FTAAP would cover half the world's global commerce and two-fifths of its trade. Kan said the rough target date was 2020.

The Asia-Pacific region has led the world's still-weak recovery from the financial crisis, and the region's leaders are convinced that open markets are a sure way to ensure future growth. Still, creating such a huge free trade zone is a highly complicated endeavor given the region's diversity and vested interests opposed to opening markets.

China's transformation into the world's second-largest economy , overtaking Japan this year , and the dynamism that has helped it lead the global recovery, was made possible mainly by opening to foreign trade and investment. While Washington complains that Beijing keeps its currency artificially low, giving China's exports an unfair price advantage, consumers have benefited enormously from lower-priced imports.

Japan's economy, meanwhile, has been stagnant for two decades, stymied by weak demand and a shrinking population even as regional rivals such as South Korea , which is racing ahead of Japan in free trade deals , are becoming formidable competitors.

"Other Asian economies are catching up to or surpassing Japan," Kan said Sunday after the summit ended.

"Japan would like to stay as a country with vigor, and to survive in this context, we really need to have economic integration with Asian and Pacific Rim friends and countries so that together we can grow," he said.

Although Japan has long sought to boost demand at home, the resource-scarce country remains strongly dependent on exports.

Driven by a sense of urgency, Japan's government , led by the ruling Democrats, who overthrew the long-ruling conservatives last year , announced a striking new openness toward free trade in a policy paper last week, just before the APEC meetings, as a way to revive growth.

Calling the present a "watershed moment," Tokyo promised to "open up the country." It pledged to wrap up free trade negotiations with Australia, resume suspended trade talks with South Korea, and seek new free trade partners, warning the country needed to become a more attractive place to invest. On Sunday, Japan signed a free trade deal with Peru.

Japan must now decide whether to join a U.S.-backed free trade grouping called the Trans-Pacific Partnership, which the APEC leaders held up as a building block for an eventual Pacific-wide free trade zone. The U.S., Australia, Malaysia, Vietnam and Peru are negotiating to join the TPP bloc, which currently brings together the small economies of Chile, New Zealand, Brunei and Singapore.

Big Japanese corporations are urging Kan to join or put Japan at a disadvantage, but he is already facing an intense fight from farmers who fret that a flood of cheaper agricultural products will ruin them.

"We small-scale farmers cannot compete with large-scale growers abroad," said Ryoichi Fujimaki, a 43-year-old vegetable farmer near Yokohama.

While Kan has also promised to revitalize Japan's farming industry and overhaul agricultural policy, but hasn't given details.

Some APEC leaders urged Japan to consider the big picture.

"You cannot guide your integration policy on only one sector," said Chilean President Sebastian Pinera, noting that agriculture represented less than 2 percent of Japan's economy. "If the country as a whole will win because of the FTA, that means it can compensate the losers and still there will be something for the winners."

Some movement in this counter recently. There was a controlled program of a few lots buy-up every 3 mins previously.

Anticipation of results of possible re-financing of loan?

I seem to recall that Saizen has a large public float yet there is always a 4-5k blockage.

I never realized it until today but Saizen REIT uploads a monthly newsletter in its website (http://www.saizenreit.com.sg/index.php?o...r&Itemid=1 ). It contains a lot of details on the Management view on the property financing industry in Japan. Good read for those seeking to invest in Saizen REIT.

(Not Vested)

(03-01-2011, 12:15 PM)Nick Wrote: I never realized it until today but Saizen REIT uploads a monthly newsletter in its website (http://www.saizenreit.com.sg/index.php?o...r&Itemid=1 ). It contains a lot of details on the Management view on the property financing industry in Japan. Good read for those seeking to invest in Saizen REIT.

(Not Vested)

Oh hm.. never realised that. Will take a look.

Their IR does not respond to email inquiries though.