Saizen REIT

[winston]

by ucypmas on Wed Jan 14, 2009 4:48 pm

Jan 13, 2009
Pay dividends in units?
By Elizabeth Wilmot

IN WHAT appears set to be a first here, the manager of Saizen Real Estate Investment Trust (Saizen Reit), has proposed paying dividends in the form of Reit units - rather than cash.
Investors here may have reason to be worried as one of the key attractions of such Reits lies in their regular dividend-style cash payments.

Japan Residential Assets Manager said the proposed terms and conditions of the scrip dividend scheme, as it is called, are subject to the approval of unitholders.

It is unclear at this point whether unit-holders might be able to elect whether they wish to receive part or all of the dividend in the form of units - or if they could elect to take cash instead.

This announcement follows a Dec 31 statement in which the Reit said it might significantly reduce or suspend dividend payouts in cash, in the light of the current financial crisis.

Saizen Reit is likely to be the first Reit in Singapore to offer such a scheme.

The manager said in its statement that the scheme would provide 'flexibility for Saizen Reit to pay out part or whole of a dividend by way of new scrip dividend units (in the event that a dividend is announced) and allows cash to be conserved for loan repayments'.

It also said that 'the adoption and implementation of the scrip dividend scheme will enlarge Saizen Reit's capital base, improve the liquidity of units and strengthen its working capital position.'

In the Dec 31 statement, the Reit had proposed a rights issue in a bid to raise S$44.75 million to pay off loans and fund its operations.

However, it assured unit-holders that it had sufficient cash resources to fully repay the 5.28 billion yen (S$84.12 million) loans which fall due this month and in April this year.

The Reit manager will in due course be submitting an additional listing application to the Singapore Exchange (SGX) to seek the listing of the new scrip dividend units issued under the proposed scheme.

The details of the scheme will be set out in a circular to be sent to unitholders at a later date. Saizen Reit will also convene an extraordinary general meeting in order to seek the approval of unitholders for the proposed scheme.

The Reit's manager has also advised anyone who wishes to invest or trade in the units of the Reit, to exercise due caution and to consider the recommendations of the directors set out in a circular which will be sent out at a later date.

Saizen Reit units closed 0.5

[ucypmas]

This has put the fear of God into REIT buyers...

[millionairemind]

February 2, 2009, 4.28 pm (Singapore time)

Moody's puts Saizen Reit on review for possible downgrade

By KALPANA RASHIWALA

Moody's Investors Service has today put Saizen REIT's Baa3 corporate family rating on review for possible downgrade.

Kaven Tsang, a Moody's assistant vice-president/analyst said: 'The review is prompted by Moody's expectation that it is unlikely that Saizen can achieve the operating scale that was built into its existing rating when it was first assigned, as the credit and financing market remains tight and could deteriorate further in view of the deleveraging progress evident in the banking system...Meanwhile, Saizen stays exposed to a high level of refinancing risk in the fourth quarter of 2009.'

'Saizen's internal reserves - including an estimated 5.7 billion yen in unrestricted cash as of Dec 2008 - and approximately 2.5 billion yen in proceeds from its recently announced rights issues, which is subject to the approvals of regulatory bodies and independent unit holders, are more than enough to cover the maturing debt in the first half of 2009. However, it still has to secure additional financing to meet a total of 13.4 billion yen in maturing CMBS due in the fourth quarter,' Mr Tsang added.

[winston]

From DMG:-

No distribution from Saizen Reit for Q2
Saizen Real Estate Investment Trust (Saizen Reit) yesterday said that it will not be giving out any
distribution for its FY2009 second quarter.

Saizen Reit, listed on the Singapore Exchange in November 2007, invests in Japanese regional residential properties. The Reit reported that income attributable to its unitholders for the three months ended Dec 31, 2008 (Q2 2009) came to 214.7 million yen (S$3.5 million). In Q2 the previous year, Saizen Reit recorded income attributable to its unitholders of negative 565.2 million yen on the back of high IPO expenses.

Due to an increase in the size of the Reit's property portfolio, gross revenue and net property income rose by 24.5 per cent and 24.7 per cent respectively in Q2 2009 compared to a year ago.

Saizen Reit has a total of 5.28 billion yen of loans due in the first half of 2009. The Reit said that while it has sufficient cash resources on hand to fully repay that amount, it has a further 13.40 billion yen of loans due in November and December 2009. 'Discussions with various potential lenders on their refinancing is ongoing,' it informed. To facilitate and improve the likelihood of refinancing, the Reit's manager in December 2008 announced a proposed rights-cum-warrants issue to strengthen the Reit's capital base.

Documentation of the rights-cum-warrants issue is in progress and regulatory clearance is now being obtained, it said. The relevant EGM could be convened in or around end-March or early-April 2009.

On Jan 13, the manager further proposed a scrip-only dividend scheme, subject to unitholders' approval, 'to provide the flexibility for Saizen Reit to pay out part or whole of a dividend by way of new scrip dividend units (in the event that a dividend is announced) and allows cash to be conserved for loan repayments'.

Yesterday, the trust said that the payment of dividends in the form of units will be a 'temporary measure to conserve cash during this uncertain period'. Saizen Reit will resume its dividend payment in the form of cash once the loan refinancing issues are resolved, it said.

Looking ahead, the trust said that while deteriorating economic conditions have resulted in increased leasing competition in certain cities, the negative impact on portfolio's occupancies and operations have been relatively subdued as Saizen Reit's portfolio properties cater to the local mass market segment instead of the high-end or expatriate markets.

Source: Business Times

[winston]

From DMG:-

Saizen Reit aims to resume dividend payments in June 2010

Saizen Real Estate Investment Trust (Reit), which recently suspended dividend payments to unitholders to conserve cash, hopes to resume payments by June 2010 at the latest. In the meantime, all operating cash flow will be used to service its commercial mortgage backed securities (CMBS) loans, it said.

'We are very clear on our mandate,' Raymond Wong, executive director of the Reit's manager, told BT. 'A Reit is a yield vehicle. We are fully aware of this and we want to keep paying dividends at all cost - but these are exceptional times.' The trust, which is looking to raise net proceeds of $41 million through a rights issue, says it should have paid off five of its six CMBS loans by June 2010, after which it can use its property income to resume paying dividends.

The Reit will draw on cash reserves, proceeds from its rights issue, operating cash flow and a short-term bridging loan to pay off five CMBS loans worth some 12.2 billion yen (S$187.95) million in all. For the sixth CMBS loan, worth 7.95 billion yen, Saizen is looking for refinancing through a possible syndicated loan.

Mr Wong hopes that once the 12.2 billion yen CMBS loans are paid off, the assets used to secure those loans - which will then all be unencumbered - can then be used to secure refinancing for the sixth. In the worst-case scenario, if no refinancing can be found for the sixth loan, the trust may have to forfeit properties worth 10.3 billion Japanese yen, which were used as collateral for that CMBS loan tranche.

The trust also has another 6.68 billion yen of traditional bank loans due from 2011 onwards. Management is trying to ensure the survival of the Reit, Mr Wong said. 'We are really making an effort to explain to shareholders that by holding back the dividends and with the rights issue, we will ensure survival and also protect at least 90 per cent of the (portfolio) value.' The trust, 2 April 2009 which derives its income from rental properties in Japan, said in February that it was not declaring any distribution for Q2 2009.

Prior to that, it put out a proposal that would allow it to pay dividends in the form of Reit units - rather than cash - but later said it would not proceed with this scrip dividend scheme. Mr Wong yesterday said the plan was abandoned after deliberations with the Singapore Exchange. The Reit, which has a portfolio of 166 buildings with 6,000 rental homes in Japan, said rents and occupancies across its largely mass-market properties have remained stable since the current crisis began.

'In the past 18 months since our listing, we have delivered results,' said Mr Wong. The trust saw gross revenue and net property income rise by 24.5 per cent and 24.7 per cent respectively in its Q2 2009 quarter compared with a year earlier, due to an increase in the size of its portfolio. 'The one big problem we are facing is the refinancing,' Mr Wong said. Saizen Reit was hit when the market for CMBS products collapsed in 2008 at the onset of the current crisis.

When building up its portfolio in the years leading up to its 2007 listing, Saizen relied solely on CMBS to finance its buying. But the CMBS market shut down at the beginning
of 2008.The trust had already changed some of its loans to traditional bank loans by then, but the crisis meant bank loans dried up, leaving it with six CMBS loans.

Moody's Investors Service yesterday downgraded Saizen Reit's corporate family rating to Ba3 from Ba1. The rating remains on review for further possible downgrade, the agency said.

Source: Business Times, Bloomberg and The Straits Times

[winston]

Small position. From DBS:-

Saizen Reit, which recently suspended dividend payments to unit holders to conserve cash, hopes to resume
payments by June 2010 at the latest. In the meantime, all operating cash flow will be used to service its commercial mortgage backed securities (CMBS) loans.

The trust, which is looking to raise net proceeds of $41m through a rights issue, says it should have paid off five of its six CMBS loans by June 2010, after which it can use its property income to resume paying dividends.

[winston]

Hmm... this one has doubled from it's low of 0.09..

Looks like it's now more palatable for the people to subscribe to the rights

So if one subscribes to the right and sit for 10 years, would Japanese Real Estate rebound by then ?

And what is the opportunity cost of those "dead money" ?

[winston]

Annual Valuation for Properties of Saizen REIT’s Property Portfolio

Based on the Annual Valuation, the aggregate value of the properties amounted to JPY 42,734 million (S$650.4 million1). This represents a decrease of 2.4% to the aggregate value of JPY43,768 million (S$666.2 million1) of these properties based on the desktop valuation performed on these 166 properties as at 31 January 2009, and a decrease of 12.9% to the aggregate value of JPY49,062 million (S$746.8 million1) of these properties based on valuation performed as at 30 June 2008.

http://info.sgx.com/webcoranncatth.nsf/ ... penelement

[winston]

Saizen Real Estate Investment Trust (Reit), which has suspended distribution of income for the financial year ended June 30, 2009 (FY2009) to conserve cash, said that it aims to resume distribution from the last quarter of FY2010 or the first quarter of FY2011.

This comment came in its financial report for FY2009, which saw it posting a 19 per cent fall in distributable income to 1.37 billion yen (S$20.37 million). Its net property income, however, grew 17.2 per cent to 2.9 billion yen as it recognised contributions from 166 properties for the full fiscal year. In fiscal 2008, some 65 properties were added gradually across the year. (BT)

[winston]

Vested. From Kim Eng:-

Pure owner of Japanese residential housing properties
Saizen REIT was listed in November 2007 and it invests in residential properties across 13 regional cities in Japan. The properties are leased out typically to the working singles and small families. Demand for rental housing is strong in Japan as home ownership is relatively low at 60% compared to about 91% in Singapore and 76% in Hong Kong and 69% in the United States.

Distressed asset for value hunters
Saizen REIT’s income stream is steady and reliable as its portfolio is well-diversified with 6000 apartment units. Residential rent in Japan has been stable over the last 20 years, growing at an average of 1% p.a. The rental rates of Saizen REIT’s properties have been consistent at around S$2 psf/mth and occupancy rates maintained at about 90%.

Yet the property values appear distressed (few real estate transactions due to lack of financing and sellers are in distressed state). With refinancing issues pending to be resolved, the stock is trading at even more distressed level of 0.4x P/NAV.

Management expects default to have minimal repercussions
However, with proceeds from the rights issue, cash-on-hand, operating cash flow conserved and short-term bridging facilities, Saizen REIT expects to repay five out of six CMBS loans maturing in end 2009 and early 2010. The management is likely to default on the YK Shintoku CMBS loan (S$121m loan on assets ring-fenced of $375.5m) due in Nov 2009.

This is the best option as Saizen REIT will still be able to operate as a going-concern and the reduction in Group NAV is only 10% or S$37.6m. Repayment of these CMBS would remove the encumbrance for half of its property portfolio (S$340m).

Dividend distribution resume as early as mid-2010
The manager has targeted to resume distribution by the middle of 2010 and this should encourage the exercise of warrants. The 3-year warrants came free (exercise price of 9 cts) with every right subscribed for. Proceeds from the warrants (S$41.1m in the event all the warrants are exercised) could be used for debt repayment. Assuming constant asset values, Group gearing could decline to 33% by 2012.

Yield premium reflects future refinancing implications
As operations are expected to be stable, we estimate post-rights DPU to be in the range of 2.0-2.5 cts (yield 12.5-15.6% yield), based on a payout ratio of 90%. Assuming all warrants are exercised, the stock still yields 8% (est. fully diluted DPU 1.3 cts). With this, we also believe that the market is pricing in the possibility of the REIT having difficulty in securing loans on favourable terms in future due to their history of default.