Category: Saizen
Saizen – BT
Saizen to resume payouts in Q4 FY’10
It posts 19% fall in distributable income to 1.37 billion yen for FY2009
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.
Saizen also completed its divestment of UI Building for 274.68 million yen yesterday.
‘While the real estate transaction market is expected to remain difficult, the management team expects property operations to be stable in the coming financial year,’ the trust said in its financial statement.
It noted that property operations in the regional mass residential market that it operates in have not been adversely affected, while occupancy rate and rental reversions are expected to be stable with proactive management.
The Reit, which has suspended distribution payments since its fiscal second quarter, said that the decision to stall paying out distribution was made after careful consideration of the credit situation.
‘The board endeavours to resume distribution as soon as the financial position of Saizen Reit allows,’ it said.
It noted that the availability of financing continues to be limited, citing a Fitch Ratings report in April, which projected a surge in default rate on commercial mortgage-backed securities (CMBS). All of its 14.9 billion yen loans are funded by CMBS.
The trust will use its operational cashflow, proceeds from its $41.3 million rights issue and short-term bridging loan of 400 million yen to repay the loans of YK Kokkei, YK Shingen and YK Keizan that are due in November 2009, December 2009 and January 2010 respectively.
Thereafter, it will use its operational cashflow to repay the short-term bridging loan as soon as possible, given its high interest costs. After these repayments, cashflow from operations will be distributed to unitholders, Saizen Reit said.
It had earlier proposed to pay dividends for its second fiscal quarter in Reit units instead of cash, but abandoned the scrip-only plan after talks with the Singapore Exchange.
REITs – BT
Reits not sure-win investments
THE Saizen Real Estate Investment Trust (Reit) saga should dispel several widely held myths about the Singapore Reit sector – that the trusts are no-brainer investments; that they are duty-bound to pay out dividends; and that the most important thing to consider when assessing whether a Reit is worth putting your money into is the possible returns from the trust’s portfolio.
Saizen Reit, which in February said that it was not going to pay a distribution for Q2 2009 in order to conserve cash and pay off its loans, has more recently said that it aims to resume payments as soon as possible. But investors may have to wait as long as June 2010, which is when the Reit said it expects to resolve its funding issues.
Prior to those announcements, the trust, which gets its income from residential rental properties in Japan, 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 the plan after deliberations with the Singapore Exchange.
For unitholders, this means that they may not get any income from their holdings in the Reit for more than a year. These investors, who probably bought into the Reit to be ensured of a stable source of income, could now have no such income until mid-2010.
The most important thing for a newcomer to the sector to note is that Reits are not required by law to pay out dividends. Singapore-listed Reits have to distribute to unitholders at least 90 per cent of their distributable income, in order to enjoy tax transparency – which means exemption from paying corporate tax at the Reit/vehicle level on the portion of income they distribute.
But this tax break only applies to those Reits with assets based in Singapore. Reits such as Saizen, which have all of their properties in Japan, do not qualify for the above-mentioned tax transparency treatment. This means that they do not have the same incentive to pay out 90 per cent of their distributable income that Reits with all their assets based in Singapore do.
The Reit sector here has been drawing investors by advertising high yields (which have gotten even higher as Reit stock prices have fallen by quite a bit over the past year). But these yields – as Saizen Reit has proven – are not always guaranteed.
The other thing that this whole saga has highlighted is that when evaluating whether a Reit is worth putting your money into, it is not enough to just consider the viability of the Reit’s business. One must also look at how the trust initially financed its property portfolio.
By all accounts, Saizen Reit’s income stream seems to be stable. The trust, 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.
Rather, the problem is with the way those properties were financed when they were acquired. When building up its portfolio in the years leading up to its 2007 listing, Saizen relied solely on commercial mortgage backed securities (CMBS) loans to finance its buying. But the CMBS market all but 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 that bank loans dried up, leaving it with six CMBS loans worth some 20.15 billion yen (S$303.8 million) in all – which Saizen couldn’t refinance.
Now, the trust has to draw on cash reserves, proceeds from a $41 million rights issue, operating cash flow and a short-term bridging loan to pay off five of these CMBS loans worth some 12.2 billion yen in all.
For the sixth CMBS loan, worth 7.95 billion yen, Saizen is looking for refinancing through a possible syndicated loan. 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.
High yields and capital gains in the initial years of the sector’s growth have spoilt Singapore Reit investors, or worse still, lulled some into thinking Reits are sure-win investments. What happened at Saizen, hopefully, will serve as a wake-up call.
Saizen – BT
Saizen Reit aims to resume dividend payments in June 2010
In the meantime, all operating cash flow will be used to service CMBS loans
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, 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.
Saizen – BT
Moody’s lowers Saizen; review for possible downgrade
Moody’s Investors Service has downgraded Saizen REIT’s corporate family rating to Ba3 from Ba1.
At the same time, the rating remains on review for further possible downgrade.
‘The downgrade reflects Saizen’s rising liquidity pressure with the presence of material refinancing risk in 4Q2009,’ says Kaven Tsang, a Moody’s AVP/Analyst.
‘While Saizen has suspended dividend payouts to preserve liquidity and is conducting a rights issue to address part of the refinancing needs, a significant portion of the maturing CMBS still does not have any committed funding arrangements. This material liquidity exposure will position Saizen more appropriately at the Ba3 rating level,’ he adds. Mr Tsang is also Moody’s lead analyst for the trust.
‘The slow process in refinancing and the narrow nature of its banking relationships would further increase Saizen’s exposure to market uncertainties, in view of the tightened nature of the global credit environment and the distressed state of the banking sector,’ he said.
‘Meanwhile, Saizen is exposed to the weakening in the operating environment and asset devaluation risk, as Japan’s recession deepens.
‘The latter could narrow the headroom for loan covenant compliance.’
Partly mitigating these concerns is the fact that its properties are in cities whose rental housing markets display fairly stable histories, even during the downturns of the late 1990s and early 2000s.
Saizen’s rating remains on review for possible downgrade and the review will focus on the company’s abilities to raise committed funding to address the unfunded portion of the maturing CMBS in 4Q2009 against the backdrop of turbulence in the financial markets.
Further downward rating pressure would evolve if Saizen’s liquidity position weakens, in the event that 1) Saizen fails to complete its rights issues, and 2) there is no material progress in securing committed funds — over the next 2 months — to refinance the unfunded portion of the maturing CMBS in 4Q 2009.
The last rating action was on 26 February 2009 when Saizen’s rating was downgraded to Ba1 and Moody’s continued its review for further possible downgrade.
Saizen – BT
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.
‘In view of the current uncertain credit environment and the maturity schedule of Saizen Reit’s loans, the board believes it will be prudent for Saizen Reit to conserve cash at this juncture. As a temporary measure, the board therefore does not propose to declare any distribution for Q2 2009,’ the Reit told the Singapore Exchange.
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.