Saizen Reit

Saizen Reit: has been making new multi year highs, a sign of positive momentum. Phillip Securities visited 6 residences in Fukuoka, Kumamoto and Hiroshima in Saizen’s portfolio. Notes the properties were well-fitted, and conveniently situated in major commercial and entertainment areas, or towns near transportation networks connecting to major business and commercial centres or close to educational institutions. The house believes the Japan residential property sector may have hit rock-bottom and the worst could be over. Cap rate is tightening marginally for some cities, evidenced by the modest increase of 0.8% for the valuation of Saizen’s 130 portfolio properties in FY12. Notes Saizen’s borrowing cost and loan tenure are improving over time since global financial crisis. Highlights further boost as the warrant proceeds can be used to perform share buyback which is DPU accretive. Phillip does not have a rating on Saizen, but believes investors may consider the Reit for exposure to improving Japan residential market. About Saizen REIT -- listed on SGX Mainboard in Nov 2007. To date, the trust owns 136 residential properties diversified across 14 cities in Japan, and are valued at JPY37.6b (~S$553m). Its property portfolio has an average age of ~14.8 years and occupancy rate of 91.7%. All these properties are managed by K.K. Tenyu Asset Mgt which manages up to 158 residential and commercial buildings in Japan. The bulk of the residential units are small- (20-35 sm) and medium- sized (35-50 sm), which account for 87.7% of the total residential units (5,328). The remainder is family-sized units (>50 sm). The tenant profile is mostly young working singles, double income with no kids (DINKs) and students. The small- and medium- size units are largely in-line with the trend of late and low marriage, and low birth rates in Japan. In terms of revenue distribution, the top five cities – Sapporo (23.6%), Kumamoto (24.2%), Hiroshima (12.5%), Sendai (11.2%) and Kitakyushu (8.5%) – contributed about 80% of total gross revenue.