AK71 is single and has just turned 40. He is a business executive in a local SME. In an earlier article, he revealed that his income from REITs totalled nearly S$105,000 last year. He had another big boost last year from selling his properties, and then moving back to live with his parents. He started investing in the stock market as an undergrad although he had no knowledge of TA or FA. "Totally ignorant, I shouldn't call myself an investor back then. I am a little less ignorant now, I hope," he says.

The following content is reproduced with permission from his blog


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A building in Japan owned by Saizen REIT. Photo: Company

REGULAR READERS would know my whole story with Saizen REIT. I remain invested in the REIT for various reasons which I believe are still valid.

This blog post is to answer a question which I have received from readers, friends and family alike. Is it a good time to buy more units of Saizen REIT?

This is a question which I would avoid giving a direct answer to. There is a great deal of subjectivity.

However, I would present some numbers here and you decide.

The annualised DPU is some 1.22c based on the last payout. At 13.6c a unit, the distribution yield is some 8.97%. Sounds good?

However, bearing in mind that its warrants will expire on the 1st of next month, I expect the warrants to be fully exercised within these few days. The exercise price is 9c.

This would increase the units in issue by some 13%.

So, everything being equal, it would be reasonable to expect the DPU and distribution yield to reduce somewhat. Revised DPU is about 1.08c which would give us a distribution yield of 7.94% based on 13.6c a unit. Still sounds good?

I would also like to throw in the possibility of the JPY weakening further. The lowest the JPY has been against the S$, I remember, was S$12.50 to JPY1,000.

That was a few years ago. It is currently about S$15.80 to JPY1,000. This is already weaker than late last year when it was more than S$16.00 to JPY1,000.

Assuming that the JPY weakens another 20% from current levels, I expect the DPU to be 0.864c which would give us a distribution yield of 6.35%. Still good enough?

Of course, the weakening of the JPY is very unlikely to happen overnight in such a large magnitude. Neither is this a guaranteed scenario although it is highly probable with the Japanese government keen on weakening its currency.

What I have done so far is to assume the worst case scenario, barring more natural disasters and an attack by Godzilla. What I have not done yet is to take into consideration what the management might do to bump up DPU in JPY terms.

With the warrants exercised, the gearing of Saizen REIT would drop to the low 20+%. The REIT would probably continue looking for yield accretive purchases. Gearing is expected to hit the optimum 40% in such an instance. It is estimated that DPU could increase some 30% then. Promising, isn't it? Remember that this remains guesswork on our part, however.

I have mentioned this before but it pays to be reminded also that Saizen REIT's loans are amortising in nature. This means that its debt burden would reduce in time. In fact, I made the observation before that if the REIT's loans were not amortising in nature, its DPU would be some 50% higher than it is now.

Now, you decide if Saizen REIT is a buy for you at 13.6c a unit.


Recent story: AK71: 'My total passive income from REITS this year is nearly $105K"

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Comments  

#5 hayashij 2013-04-10 10:15
shd be JPY12.50 to S$100 and 31 Dec 2013.
#4 hayashij 2013-04-10 10:13
In you post, you mentioned the low of JPY as S$ to $1. We are indeed at that low level again after the recent BOJ announcement of QE. I saw that NAV @ 31 Dec 2013 was S$0.27. Given that the JPY is now abt 80.16 to S$1 versus the 70.2 to S$1 used in Saizend 31Dec 2012 AR, that means NAV is down 12% or S$0.23.6 only. Yet share price short up to S$0.23 yest. Is the market missing something? Saizen assets and revenue are in JPY, with the JPY plunging, Saizen shd be worth less now, not more.
#3 Jane 2012-05-27 06:26
Saizen truly is a steady investment. I looked at the chart and it has a v tight trading range. It's peace of mind for those who are in it for dividend yield. It's not going to give u major % capital gain.

Of course, the past is no guide to the future. Saizen could turn in a handsome capital gain, if they .....
#2 Paperman 2012-05-26 17:23
Re: JPY depreciating vs SGD. I think it could be the other way around. As capital takes flight from eurozone, more of it will end up in Japan rather than SG, don't you think?
#1 Poet 2012-05-26 13:11
AK71, your net worth increases by the day with such solid investments! I see Saizen as having a short-term dip from the 14-16 cent range it has been at for the past 1 year. It's now at 13.1 because of the conversion of warrants and the dilution effect which will be negated when Saizen makes more acquisitions to improve the DPU. Sure will happen. For all we know, it might be saving some announcement to make in the coming weeks.

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