Saizen REIT: Yen Depreciation Remains A Key Risk
LAST CLOSE: S$0.925
FAIR VALUE: S$0.96
Acquisitions supporting revenue and NPI growth. For the quarter ending Sep 2013, Saizen reported a 6.2% and 5.3% YoY increase in its gross revenue and net property income respectively. This was supported by the acquisitions of 5 properties between Nov 2012 and June 2013. We note that Saizen REIT’s Q1FY14 results were broadly within our expectations, with actual revenue and net property income 0.7% and 2% higher than our forecasts respectively.
Stability remains the key element at play. We are continuing to witness improvements in rent reversions from new contracts inked at Saizen REIT. Overall rent reversions of new contracts entered into Q1FY14 was marginally lower by about 0.3% from previous contracted rates (Q1FY13 and Q4FY13: lower by about 1.3% and 0.4% respectively). More notably, rent reversions have improved to positive 0.04% and 0.7% in Aug 2013 and Sep 2013 respectively - an improvement from a negative reversion of 1.9% in July 2013. Average occupancy rates have also held steady at 91.2% in Q1FY14, compared with 91.7% in Q1FY13.
Yen depreciation remains a key risk. As it seeks to minimize the impact of the volatility in the JPY/SGD rate on its upcoming distributions, Saizen REIT has entered into a hedge for its distribution payment ending 31 Dec 2013 at S$81.15/JPY. For the subsequent distribution for the period ending June 2014, it has also been hedged at a rate between a cap of JPY82/S$ and JPY76.18/S$.
We currently expect Saizen REIT’s H1FY14 DPU to increase by 8.7% YoY in yen terms. However, this will be offset by a 8.2% increase in the hedged rate compared to the corresponding period in H1FY13. Hence, in S$ terms, we expect Saizen REIT’s H1FY14 DPU to be largely flattish compared with its H1FY13 DPU.
Acquisitions to be yield accretive. With a cash pile of JPY5.4bil, Saizen REIT could certainly engage in acquisitions to accelerate its distribution growth. We are currently penciling in JPY2.3bil of acquisitions at a 6% NPI yield.
Unit consolidation completed. On 30 Oct 2013, Unitholders approved the consolidation of every five existing Units into one Unit, and this was completed on 8 Nov 2013. We adjust our FV and projected DPU accordingly to S$0.96 and 6.72c respectively.
Maintain HOLD on FV S$0.96. We lower our exchange rate assumption from JPY76.9/S$ to JPY79.3/S$ and our projected FY14 DPU of 6.72c translates into a yield of 7.3%. Our fair value of S$0.96 translates into limited capital upside of 3.7%. Together with its projected yield of 7.3%, this gives us a potential total return of 11%. Hence, we maintain HOLD on FV of S$0.96.
Publish date: 11/11/13