A New Stock Purchase - Ascott Residence Trust

Just a few days ago, I made a new stock purchase into Ascott Residence Trust at a price of $1.065. Adding this stock into my portfolio, I would have 16 stocks now. Previously I bought on Saizen REIT which was already being acquired and most of the cash has been given out. I wrote that I was seeking to find another company which can potentially replace the lost income from Saizen REIT. Ascott REIT was what I found.

About Ascott Residence Trust - Profits and Assets

Ascott Residence Trust was established with the objective of investing primarily in real estate and real estate-related assets which are income-producing and which are used or predominantly used, as serviced residences, rental housing properties and other hospitality assets. Saizen REIT was a company which has rental properties while Ascott REIT has serviced residences. Although not really the same, there are some similarities shared too. I believe this is also a stable income producing asset which is my objective for investing in it.

Unlike Saizen which has all its properties in Japan, Ascott REIT has its properties in 14 different countries. To me, this is quite a diversified portfolio. It has a total of 89 properties currently. Most of its gross profit is generated from Japan at $34.2 Million followed by France at $32.4 Million and UK at $26.7 Million. In terms of assets in its portfolio, China is the largest at 17% followed by Japan at 15.8% and Singapore at 13.3%.

From the information on its gross profit and total assets breakdown, I would be able to see how its profit or asset value would be affected. I like the fact that its profit from Japan contributes to a big part of its portfolio as rental yield in Japan is certainly going up as in my analysis for Saizen. The risks is we have seen that the QE being done in Japan has not worked out as well as what we thought it would be but the government relentless pursuit to revive back inflation in its economy is certainly sending asset and rental prices up. This is a good thing for Ascott. Another risk is 17% of its total assets are from China. If China would to have a property market correction, it would definitely affect the asset value of its portfolio when revaluation comes.

In its latest financial result, portfolio value was up by 15%  mainly due to properties acquired in 2H 2015 as well as higher valuation of properties in Japan, France and United Kingdom. However, portfolio value from properties in Australia went down. The NAV increased from $1.37 to $1.41 currently. The latest share price is trading at around $1.06. This represents a discount of 24.8% to its NAV. Distribution per unit (DPU) was 7.99 cents in 2015. Taking the current stock price of $1.06, this represents a dividend yield of about 7.5% which I think is quite attractive.


Stability of Income?

If we're investing for income, we have to ask ourselves will the DPU be stable? What will affect the profit and thus the DPU given out? Occupancy rates, currency movements and rental rates are some of the factors which will affect their DPU.

For occupancy rates, Ascott REIT focuses on long stay segments to provide stability in income. 23% of its properties are rented out for more than 12 months contract with the average length of stay about 4 months. In addition, 46% of the Group’s gross profit for FY 2015 is contributed by master leases and management contracts with minimum guaranteed income.

For currency movement,  Ascott REIT entered into foreign currency forward contracts to hedge distribution income derived in EUR, GBP and JPY. On a portfolio basis, 40% of FY 2015 foreign currency distribution income had been hedged. This is a good strategy as most of its profits comes from Japan, UK and France. All 3 different currencies from these countries are hedged. However, DPU will still be affected such as the AUD and MYR declining substantially against the SGD in FY 2015.


Debt Profile & Valuations

On its debt profile, gearing is at 39.3% with 79% of its loans on fixed rates as at 31 December 2015. Total debt is at $1815 Million while cash and cash equivalents are at 220.5 Million. 14% of its loans will mature in 2016 where they will refinance it into fixed rates loans. Another 10% will mature in 2017 and 12% in 2018. Weighted Average Debt to Maturity is 4.6 Years.

To me, I believe the DPU should remain stable at least for the next few years. With most of its profits coming from Japan where I believe rental rates will continue to be stable and even pick up, this will be good for the REIT as a whole. Occupancy for rental housing in Japan is 98% in 4Q 2015. Rental housing in Japan is in demand due to the high cost of owning a home in Japan. 

At the current valuation, this represents a discount to NAV where dividend yield is fairly attractive at 7.5%. I am primarily invested in this for the yield for income. Investing into it now doesn't mean the price would not go lower. It only means I think the company is at a good value now and if it were to go down further, I will definitely accumulate more.

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Saizen REIT - The Final Closure Of My Biggest Stock Holding

Saizen REIT has been a good investment and this stock is finally coming to a close after it announced that it will be acquired in November last year. I invested in Saizen REIT as early as end 2013. It has been more than 2 years now. Over the years, I added to my position in this REIT and it became my largest stock holding in my portfolio. It is a final closure now and most of the cash will be paid out on 29th March this month.

Since this has been a relatively successful investment, it would be good to understand what are the factors that make it an attractive investment? Let me share the rationale on why I invested it in the first place and what we can learn from this.

1. Macroeconomic Factors in Japan

The first reason why I decided to invest in Saizen REIT was due to the macroeconomic factors in Japan at that time. 3 years back while I was taking my part time degree in Economics, I heard about the QE that Japan was going to embark on. I understand that the QE in US and Europe were roads to easy money which actually brought US out of a recession from the 2007 sub prime mortgage crisis and the EU also averted a major sovereign debt crisis.

In 2013, I wrote this in a blog post:

Japan's real estate prices were rising tremendously from 1986 to 1991. This formed an asset price bubble and the bubble burst in 1991 sending real estate prices down into negative territory. Japanese Yen was appreciating a lot due to the Plaza Accord. This was an agreement to depreciate the US dollar in relation to Japanese Yen and German Deutsche Mark. Both these 2 events lead to the Japanese economy suffering and ended up in deflation. I will leave out the finer details of what happened exactly but i hope you got a rough idea. 

Japan's government has set an inflation target of 2% to reach by 2015. Prior to that, Japan has been in a deflation state for many years. As prices keep dropping, Japanese people defer their buying in the hopes that they can buy it at a cheaper price later. This is completely opposite from our current state in Singapore where people rush to buy properties because they are afraid that prices will keep going up. It's the thought that if i don't buy it now, it's going to get more expensive.

With this inflation target, asset prices in Japan are sure going to go up. With QE, money flow in Japan's economy will be expanded. Interest rates go down, asset prices goes up. This was definitely going to be beneficial for Saizen Reit which owns properties in Japan. 

2. Saizen REIT has stable income from residential properties

Saizen Reit has a portfolio of income producing real estate. These properties are mostly residential properties. As home ownership is low at about 60% in Japan, rental properties are still in strong demand there. Rental prices are set to rise as the Japan's economy recover. mid market rents in the 23 ward area of Tokyo showed an increase of 1.1% from the year 2013. This was very attractive to me as Saizen REIT offers about 6%+ in dividend yield at the price which I bought. 

3. Attractive valuation

Saizen REIT stock price has been low for quite some time. In fact, it didn't really move even though it was trading at a discount to NAV of 23.7%. Gearing level was around 34% which I thought was quite ok. Of course, we can't just look at NAV alone to determine if the stock is attractively valued. Some REITs overvalue their properties which make their NAV seem higher. However, for Saizen REIT, I do know that they value their properties conservatively as there were a few times they manage to sell their properties at above valuation. 

With rising property prices, rental prices and stock trading at a discount to NAV, I believed this was a good investment. 

4. Good risk management 

Interest rates are sensitive for REITs. 88% of its debt are on fixed interest and all its debt is long term in nature. The nearest loan maturity it has is in March 2020. Although Saizen REIT could have benefited if they are on floating interest rates instead as interest rates in Japan were low but that's any issue for now. 

The Japanese Yen was also declining against the SGD which means it could affect the dividend distribution to shareholders in Singapore. I liked they have hedged their currency risks in view of the falling JPY which means dividend yield will be more or less stable moving forward. 

Its time to bid farewell to Saizen REIT from now onwards. Now, I'll have to find another stock which can replace the income I get from Saizen. I have identified another stock which is quite similar to Saizen REIT and am still looking at it. Will blog more about it later on. 

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Related Posts:

1. The Japan story - Croesus retail trust and Saizen Reit
2. Looking to invest in Japan's real estate

3. Saizen REIT - Income from Japanese residential properties?

Investing Your First $20,000

This is going to be my first post for the new year 2016. Thinking back when I first started investing, it wasn't a really smooth sailing journey. I read lots of books on how to start investing but never really got an idea of what it really is until I experience it myself. Most were too theoretical and to be successful in investing, it is not as easy as following a set of rules.

There were very few real life examples of how people really invested their money especially in Singapore. So, a few other blogger friends and I made an effort to write and share our experiences on investing and compiled it into an Ebook. Hopefully, this will make it easier for most of you to start investing. We have named title of the book as "Investing your first $20,000"

This book is going to be given free to all my readers here as a gift for the new year. It took months to compile and bring together all the thoughts and ideas to give you a complete picture of how each of us invest our money. Feel free to download and share it around with your friends.

You can download the Ebook here

Happy new year and wishing all a wonderful year ahead!

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Saizen REIT entire portfolio is bought by Lone Star for an offer price of S$1.172

Just after less than 1 week of posting on the possibility of Saizen Reit being acquired by another firm on my blog, the news is confirmed!! Existing shareholders of Saizen Reit would be happy hearing this news. Saizen Reit has been a good investment for me for the past 2 years. It is sad to bid goodbye to this stable income producing investment. 

This is the confirmed news:

"Japan Residential Assets Manager Limited, in its capacity as manager of Saizen Real Estate

Investment Trust (“Saizen REIT”, and as manager of Saizen REIT, the “Manager”) wishes to

announce that HSBC Institutional Trust Services (Singapore) Limited, in its capacity as trustee of

Saizen REIT, has on 31 October 2015 accepted an offer (the “Offer”) for the acquisition of all the real estate assets (the “Properties”) in Saizen REIT’s portfolio in Japan by Triangle TMK for an agreed purchase consideration of JPY44,660.0 million (S$517.3 million) Triangle TMK is a Japanese affiliate of Lone Star Real Estate Fund IV and Lone Star Funds.

The Purchase Consideration is at a 3.4% premium to the appraised value of the Properties.

The Purchase Consideration is estimated to translate into an implied net offer price of S$1.172 per unit of Saizen REIT (“Unit”), or a slight premium to Saizen REIT’s adjusted net asset value (“NAV”) per Unit based on audited figures as at 30 June 2015, after taking into account estimated transaction-related costs and expenses

.

The estimated implied net offer price of S$1.17 per Unit represents a 36.9% premium above the

closing price of S$0.855 per Unit on 22 October 2015, being the day immediately prior to the

Manager’s announcement of the Offer on 23 October 2015, and a 40.9% premium above the 1-month

volume-weighted average price per Unit as of 22 October 2015."

The offer price to me is quite reasonable at $1.172 as its a premium to its NAV. I think this exceeds the expectation of many existing shareholders. Its a 30% rise above the closing price of 92 cents last week before trading halted. 

Looking back, I've written a series of articles on Saizen Reit which affirmed my decision to invest in the Japanese real estate market. Saizen Reit is the largest investment I have in my portfolio. With this gone, I'll have more cash to deploy to the next best investment in search for better dividend income. 

Congratulations to all existing shareholders of Saizen Reit!

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Related Posts:

1. Saizen REIT - Income from Japanese residential properties?

2. The Japan story - Croesus retail trust and Saizen Reit

3. Looking to invest in Japan's real estate

Saizen Reit - A surprise rise in stock price?

Saizen reit has been an investment which I've talked about for the past 2 years plus. I personally made my investment in this reit 2 years back. Much has been said about how this reit is trading at a discount and they have been able to sell some of their properties at above valuation which means the reit could be worth even more than what they valued their properties at. The net asset value could have been higher than what they had reported.

For the past 2 years, the stock price of Saizen reit has remained mostly stable with slight declines. Just last week, its price went up suddenly which made a lot of investor curious. It rose 8.2% on Friday alone. What caused the stock price to rise so much?

Saizen reit released a statement thereafter saying that they had actually received a firm's offer in relation to the assets of Saizen Reit. This simply means there's a possibility of an acquisition from another firm which caused the unit price to rise.

Here's the announcement:

"the  Manager  wishes  to  announce  that  the  Manager  has  received  a  firm  offer in  relation  to  the assets  of  Saizen  REIT  which  the  Evaluation  Committee  and  the  joint financial  advisers  are currently  reviewing  and  evaluating.  No  definitive  agreements  have been  entered  into  and  there is  no  assurance  that  the  offer  will  be  accepted  and  that  definitive agreements  will  be  entered into."  

However, it is still speculative at this stage on whether the acquisition will go through. With Saizen reit's net asset valued at  $1.14 currently, any potential buyout may be higher than its current stock price below $1 thus the stock price rose from 80 cents plus to 93 cents on Friday.

Saizen Reit has a portfolio of income producing real estates. These properties are mostly residential properties. It is hard to find an investment in residential properties which was what attracted me to invest in Saizen reit in the beginning. The company is certainly trading at a discount plus residential properties are stable income producing assets especially in Japan where the majority of the population rent their homes.

Saizen Reit is my biggest investment to date as I've added my positions over the years at lower prices. I've collected dividends over the years while waiting for the Reit to unlock its true value. Whether there's an acquisition or not, this has still been a good investment till today.

Let's see what happens next.

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Related Posts:
1. The Japan story - Croesus retail trust and Saizen Reit
2. Saizen REIT - Income from Japanese residential properties?

Croesus Retail Trust - Rights Issue 22 For 100

Croesus Retail Trust is a company which I invested in since November 2013. This is a business trust which owns shopping centres in Japan. It currently has 7 properties in its portfolio and is buying the 8th property in Kyushu island. This is the reason for the rights issue which was announced just a few days ago.

I will be subscribing to the rights issue and also will be applying for excess rights. This has been something which I've been waiting for quite some time now. The dividend income I've been getting from this stock has been quite stable for the past 2 years which I believe the management knows what they are doing.

I attended the retail investor seminar of CRT just a few months back which reaffirms my decision to invest in this stock. You can read more about what the management of CRT said during the seminar here: Investing in Japan's Shopping Centres - Croesus Retail Trust Retail Investor Seminar

Croesus Retail Trust Acquires Torius Property in Fukuoka Prefecture, Japan for JPY 7,997 million

Torius Property will be the eighth property in Croesus Retail Trust’s (“CRT”) portfolio, marking its first foray into Kyushu Island, and will be the fourth property acquired by CRT since its IPO in May 2013. The rights issue will be offered for Units of twenty-two (22) Rights Units for every one hundred (100) existing Units at S$0.610 per Rights Unit.

Torius Property is a large-scale suburban retail mall located in the satellite town of Hisayama-machi of Kasuya-gun, which is approximately 13 km from central Fukuoka City in Fukuoka Prefecture, on Japan’s Kyushu Island. It comprises of 36 single or double storey buildings and offers a diverse and unique mix of 145 tenants. Some of Torius Property’ tenants include Costco (wholesale supermarket), Nafco (interior and furniture, DIY), United Cinema (cinema), Rakuichi Rakuza
(amusement centre) and Daiso (100 yen shop). Other notable facilities at Torius Property include a petting zoo, as well as an outdoor barbecue park that enhances the mall's appeal as a family outing and gathering destination.

The current stock price for CRT is about S$0.815 per unit. Getting the rights units at S$0.610 will improve the yield I receive from this stock moving forward. Subscribing to the rights issue shows my trust in the management to provide good income for shareholders in the future.

The new property that they will be buying has good NPI yield of 7.84% as compared to the NPI yield of CRT's existing portfolio of 5.3%. Torius Property has a high occupancy rate of 95.3%.

The commencement of trading of rights entitlement will start on 9th October 2015 and end on 19th October 2015. The last date and time for acceptance of the Rights Entitlements and payment for Rights Units will be on 23rd October 2015.

Its time for more dividend income!

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Related Posts:
1. The Japan story - Croesus retail trust and Saizen Reit
2. Investing in Japan's Shopping Centres - Croesus Retail Trust Retail Investor Seminar