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Saizen Real Estate Investment Trust’s Latest Earnings: A Weaker Yen Weighs On

Saizen Real Estate Investment Trust (SGX: T8JU) announced its fiscal third-quarter earnings (for the three months ended 31 March 2015) on Tuesday.

Saizen REIT’s entire property portfolio resides in Japan and it can count Parkway Life REIT (SGX: C2PU)Croesus Retail Trust (SGX: S6NU), and Accordia Golf Trust  (SGX: ADQU) as other Singapore-listed REITs with significant exposure to Japan. But even so, Saizen REIT’s still unique amongst its peers given that it’s the only Singapore-listed REIT that owns Japanese residential properties.

There are currently 136 properties within Saizen REIT’s real estate portfolio. These properties, which are scattered across 14 cities in Japan, consist mainly of apartment buildings that have different types of units ranging from studio apartments to 3-bedroom family residences. Saizen REIT also manages some commercial units and carparks within the buildings that it owns.

With these as a backdrop, let’s dig into Saizen REIT’s latest set of numbers.

Financial highlights

For the quarter, the REIT recorded gross revenue of JPY969.5 million, a 2% drop from a year ago. As most expenses had stayed relatively unchanged, its net income from operation had dropped about 2.4% year on year to JPY408.1 million. The decreases were due mainly to the sale of three properties during the financial year and a slight dip in the average occupancy rate (more on this later).

Saizen REIT’s numbers in Singapore dollar terms were worse as the Japanese yen had weakened in relation to the Singapore dollar. For the quarter, gross revenue had dropped by 9.6% to S$11.03 million while net income from operations had slid by 9.9% from S$5.16 million a year ago to S$4.64 million.

Here’s a table showing some of the important metrics that can give us insight on Saizen REIT’s financial health:

Saizen REIT's balance sheet

Soure: Saizen REIT’s earnings releases

As you can see, the REIT’s balance sheet has remained relatively unchanged compared to a year ago. Investors might want to note that Saizen REIT may see its leverage increase in the future as the REIT’s manager had mentioned in the latest earnings release that it is looking to increase the REIT’s gearing level.

A REIT’s net asset value (NAV) is a good proxy for its underlying economic value and that’s why it’s a figure investors might want to track. On that front, Saizen REIT might have disappointed some as it ended 31 March 2015 with a NAV per unit of S$1.13, down by 3.5% from a year ago.

Operational highlights

Saizen REIT saw its occupancy rate fall slightly from 91.1% a year ago to 90.9% in the reporting quarter.

The REIT has also managed to maintain very stable rental rates of around JPY 1,500 per square metres since June 2008. You can see this in the chart below:

Saizen REIT average rental rate

Source: Saizen REIT’s earnings release

That said, investors might want to note that the REIT’s rental reversion was lower by 0.8% from previous contracted rates. This is something that investors might want to keep an eye on.

One important development with the REIT that was announced in the earnings release is that the “Board of Directors of the Manager plans to establish a distribution reinvestment plan (“DRP”) to provide unitholders of Saizen REIT with an option to receive distributions either in the form of units in Saizen REIT or cash or a combination of both.” The plan, which is subject to regulatory approvals, is “intended to apply to the distribution for the 6-month financial period ending 30 June 2015.”

The DRP might be good news for Saizen REIT as it can help the REIT save cash if unitholders elect to receive their distributions in units instead of cash.

An outlook

The REIT’s manager commented in the earnings that the “property operations are expected to remain stable, generating steady cash flow to enable Saizen REIT to continue paying out semi-annual distributions.”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any companies mentioned above.