Saizen REIT 3Q2010 results

I have to say that their report is very clear, completed with a nice content page and explanation of the results, which was within expectations. Some summary of their results:

1) All CMBS loans except the mega YK Shintoku loan has been repaid via either bank borrowings or cash. As for the YK Shintoku loan, the loan servicer is still in process of formulating  acourse of action.

2) Saizen has commenced accumulating cash in May 2010 for resumption of distribution. Good news!

3) On top of the JPY 1 billion loan of YK JOF mentioned in my earlier post on Saizen, another JPY 2 billion loan for YK Shinzan has been drawn successfully.

4) YK Shintoku's CMBS defaulted loan remains at JPY 7.7 billion

I have had people telling me that a REIT not giving dividends is a red herring. That might be true, but in the case of Saizen, I firmly believe it is not because of my homework done so far.

Saizen has come a long way since it's Nov 2007 listing. On the charts, it has been on a downtrend since it's listing, with the lowest about 50% lower from the current price. The price appears to be stabilizing as Saizen obtains more traditional financing via bank borrowings, and has cleared up most of its CMBS loans.

Indeed, YK Shintoku's loan still sticks out like a sore thumb. However, I do not think that the loan servicer will ask for foreclosure. Logically, if the loan servicer does not need the cash urgently, it would be wonderful to leave the loan as it is to enjoy an almost risk free 7.07% interest rate, especially when YK Shintoku still has high occupancy rates with stable cash flow.

With the new loan facility from YK Shinzan, Saizen has some additional cash to pare down YK Shintoku's debts. They could also refinance YK Shintoku's loan using the properties as collateral.


Also, by next quarter, we shall see more pple exercising their warrants due to impending dividend announcement. As such, more funds will be available to Saizen for debts repayment as well. 493000 lots of warrants redeemable at $90 each lot will provide Saizen with about $44 mill SGD, which is about JPY 2.8 billion, sufficient for a third of YK Shintoku's loan.


Using calculations from my earlier post on Saizen, I expect an annual dividend rate of $12.20 per year, or $3.05 per quarter, on a very very conservative estimate. That means, about 0.3c per share per quarter.


My expectations would be 0.2c per share for the next quarter's results, since May 2010 was where they first accumulate cash for distribution. Any more would be a nice bonus. Yet if it's less, I would sleep well knowing I bought at greater than 50% discount from NAV. :)