Saizen REIT had a high volume, white candle day. Could it be that Mr. Market is more than warming up to this once upon a time unloved REIT? It certainly looks that way.
Draw some Fibo lines and we see why 21c was a strong resistance today. With volume as high as today's, however, it would be natural for any chartist to wonder if there could be a follow through in the next session.
Of course, the very long upper wick on the candle suggests the presence of very strong selling pressure as unit price tried to push higher. Look at the CMF and we see a lower high and a lower low which suggest to me that money was flowing out of the counter as price pushed higher. This could limit upside in the short term.
Fundamentally, the NAV/unit of Saizen REIT as well as its DPU in S$ terms could reduce somewhat due to the weaker JPY. Against the S$, the JPY has weakened some 20% in the last one year. So, it would not be wrong to expect lower distribution yields, all else remaining equal.
However, Saizen REIT has been on an acquisition path and this would mitigate any reduction in NAV/unit as well as DPU in S$ terms. Indeed, unit holders would have been very pleased when a higher half yearly DPU of 0.66c was paid out recently. That was a bit higher than the DPU six months earlier.
On 31 December 2012, the REIT's NAV/unit was JPY 19.21. Based on the exchange rate of S$13.30 to JPY 1,000 today, NAV/unit works out to be S$0.255. So, at 20c a unit, Saizen REIT is still trading at a discount to NAV. Almost 22%, actually.
If units of Saizen REIT should trade at S$0.25, with an annualised DPU of 1.32c, we are looking at a distribution yield of 5.28%. For a portfolio of freehold residential properties in Japan which has seen a consistent occupancy rate of above 90%, is this good enough for Mr. Market?
There are really no comparable REITs listed in Singapore and we have to look at J-REITs to get a clue as to why Saizen REIT could look very attractive even at today's price. J-REITs' average distribution yield is just slightly above 4% now. So, at 20c a unit and with an annualised DPU of 1.32c, the 6.6% distribution yield from Saizen REIT looks extremely attractive.
With an aggressive Bank of Japan bent on their own brand of quantitative easing (QE), we could see the Land of the Rising Sun experiencing rising prices again. So, we could see Saizen REIT's portfolio of properties being valued higher in JPY terms over time. This could bump up NAV/unit in S$ terms.
However, if we look at the experience of the USA, it could take years and more than one QE before we see positive results. So, any optimism in the short term should be tempered but the longer term picture is very promising.
If Mr. Market is ready to accept a lower distribution yield of 5.5% from the REIT and 5.5% is still much higher than comparable J-REITs' distribution yields, then, we could see unit price trading higher at 24c in time to come, everything else remaining equal.
So, is Saizen REIT still undervalued now? Yes, even now, I believe that it is.
Technically, however, selling pressure was very strong as unit price tried to push past 21c. CMF shows an increase in the outflow of money from the REIT as unit price moved higher today. So, if you took some gains off the table today, I think it was a great idea. Just make sure to get back in at supports if given a chance.
Related posts:
1. Saizen REIT: Still a buy?
2. Saizen REIT: DPU 0.66c.