Saizen REIT must be the one of the least favored REITS listed on SGX. And it is hard to blame anyone for not favoring this REIT, given its rather turbulent history:-
- Listed in Nov 2007 @ IPO price of $1 (discount to its NAV of $1.05)
- Seems like the REIT has trouble servicing its loans (which are all commercial mortgage backed securities (CMBS) loans (read What is a CMBS loan and More on CMBS financing), and the market for such loans have more or less died during financial crisis in 2008) + Japan recession = no income distribution to unit holders in 2009-2010. And Saizen is allowed to do that, reason being it is not mandated by Singapore law to pay out dividends as all of its properties are in Japan.
- To add salt to this, there was the March 2011 massive earthquake. It has 22 of its 146 properties in Sendai, the hardest hit area.
- Things for this REIT started to take a turn in end 2012, after it made a series of attempts to repay its loan and made some good property buys.
- Current price is at $0.20 vs its NAV of $0.2716.
- Yield is about 5.1 % based on current price. Income distribution for this REIT resumed in 2H2010. It has been in an increasing trend since, as shown below:-
There were some sell down activities these few days following its 3Q2013 results. Seems like there was a 70.5% decline in quarterly net income from operations - which was largely due to one off expenses as a result of early termination of loans and refinancing activities. Furthermore, due to recent depreciation in yen, there is worry that DPU will be affected.
Well, for me, I think that based on past performance, Saizen has taken positive steps to get itself out of the woods. And this shows a lot for the tenacity of the management. The fact that income distribution has resumed in 2010 and shows an increasing trend over the years gives me confidence that the REIT is in good hands.
Even though there was a decline in quarterly income for 3Q2013, this is due to a one off payment for refinancing of loans. The more favorable refinanced loan terms at lower interests means that benefits will be felt in later quarters. Furthermore, the REIT is now given more time to repay its loan, and in the meantime, is able to secure more loans to fund its future acquisitions.
As for the depreciation in yen affecting DPU, this is something that probably comes off as a tradeoff to reviving the Japanese economy. From my impressions, the current Japan PM and his cabinet are taking big steps to shake Japan out of its decades of recession slumber. With a better economy comes a more vibrant real estate market in Japan, as more people work or invest in Japan, resulting in increase in demand for houses, and hopefully that means prices of Saizen assets appreciate in time. I'm sure this formed some of the considerations by investors when they participated in the recent Croesus Retail IPO.
Therefore, it was based on the above analysis that, instead of selling off my Saizen REIT when prices went down to S$0.189 on bad news, I loaded more on Saizen REIT today.
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