vested
Valuation and Recommendation.
Operational cash for distributions in Yen terms is expected to remain stable and growing, underpinned by a portfolio of growing residential assets with improving average occupancy rate of 92.2% in 3QFY13 (2QFY13 : 91.7%: 3QFY12 : 91.6%) and stabilising rental reversion trend with overall rental reversion of new contracts in 3QFY13 dipping 0.3% (2QFY13 : -0.3%; 1QFY13 : -1.3%) from previous contracted rates.
However, bold monetary policy by the Japanese central bank has led to sharp depreciation of the Yen which has led and is expected to lead to further erosion of asset value although positive asset revaluation (expected in 4QFY13) is expected to cushion the impact.
A potentially weaker DPU in S$ terms will also be mitigated through active hedging. To-date, distribution for the second half of FY13 has been fully hedged, offering a yield of about 6.5% based on our revised final DPU (FY13F) of 57 Scts (previously 66Scts) and management is looking to further hedge distributions for the next one or two semi-annual distributions.
Looking ahead, Saizen is offering a yield of 6.4% (FY14F) and 6.8% (FY15F), comparable to adjusted yield of 6.5% (FY14F) and 6.6% (FY15F) offered by recently listed Croesus Retail Trust (CRT).
We value Saizen at 20.0 Scts (previously 21.4 Scts) making a conservative assumption of a further 5% depreciation in the yen against S$ from current levels. (Please refer to Sensitivity table).
Backed by a relatively stable portfolio of assets valued at adjusted NAV per unit of 21.7Scts (assuming a further 5% depreciation of yen against S$ from current levels), price-to-book ratio (PB) of 0.87x is still low compared to PB of 1.02x of listed peers in Japan and adjusted PB of 1.3x of CRT. Long-term BUY.
Source: NRA