Saizen – BT

Saizen Reit’s acquisitions on hold; distribution per unit is 4.67 cents

SAIZEN Reit, which was listed on the Singapore Exchange in November last year, says it will hold out on new acquisitions for the present.

Arnold Ip, chairman of the Reit manager, Japan Residential Assets Manager Ltd (JRAM) said: ‘While there are attractive investment opportunities for Saizen Reit, the manager intends to adopt a cautious approach for the time being to conserve cash and financial flexibility, and do not envisage acquisitions in the short term.’

He added that priority will be given to financial management.

The announcement came yesterday when it also announced that distributable income for the financial year ended 30 June 2008 was $22.13 million. Distribution for the period is 4.67 cents per unit.

At the time of listing, Saizen Reit had an initial portfolio of 147 residential rental properties in regional cities in Japan. This has since increased to 166 properties in 13 Japanese cities.

As at June 30, the Reit’s portfolio was valued at $629.8 million.

Compared with FY’07, gross revenue in FY’08 increased by 87.2 per cent due to the increase in number of properties over these periods. There were 101 and 166 properties respectively at the start and end of FY 2008, while there were 62 and 101 properties respectively at the start and end of FY 2007.

Net property income increased from $18.37 million for FY’07 to $32.42 million in FY’08.

Saizen Reit did record a loss after income tax of $48.68 million in FY’08 compared with a profit of $26.86 million in FY’07. This was attributed to net depreciation in the value of investment properties of $59.8 million, one-off IPO expenses of about $10.5 million and exchange losses of around $4.2 million.

Based on the closing market price on August 26 of 50.5 cents per unit, the distribution yield was 9.2 per cent.

Raymond Wong, executive director of the Reit manager, noted that its share price had been beaten down recently – partly due to the downturn in the Japanese real estate market and news of the collapse of large Japanese developers like Urban Corporation.

But he pointed out the Reit had taken steps to strengthen its financial position to weather the next 12-months at least. ‘While also affected by the credit crunch, Saizen Reit has maintained adequate resources to repay loans falling due within the next 12 months while keeping net gearing ratio at about 36.5 per cent,’ he added.

To this end, Saizen Reit manager JRAM also announced yesterday an agreement with a European bank for a three-year term loan of $75.7 million collateralised by 38 existing properties.

Partial drawdown of the loan has taken place at a fixed interest rate of 2.67 per cent, representing a reduced rate compared with interest rate of the existing loan of 3.02 per cent.

At the operating level, occupancy rate stood at 91.4 per cent as at June 30 compared with 89.4 per cent as at December 31, 2007. Delinquency in rental collection is less than 0.03 per cent of revenue. Net property income yield is at approximately 6 per cent, providing Saizen Reit with an interest cover ratio of about 3.7 times based on its current level of borrowings.

Sean Pey Chang, CEO of the Reit manager, also said that it expects leasing activity and rental performance to be stable. Net property income in the quarter ended June 30 was $9.54 million, down marginally by 2.9 per cent from the previous quarter.

He also added that in the cities in which Saizen Reit is exposed, including Sapporo, Fukuoka and Kitakyushu, homeownership is only about 55 per cent.

Saizen Reit’s rental properties are targeted at the mass market and average rents are about US$1-US$1.50 psf.

At the end of trading yesterday, Saizen Reit’s unit price was 55 cents per unit, up 4.5 cents.