Prospect EP. Share Discussion Threads

[isa23] 24/9/2008 16:12

what do u mean? It's called Re-plus Residential because Re-plus is the manager. Now that Re-plus is under it will probably be called Oaktree Residential, or whoever becomes the new manager. Interesting that Re-plus Residential (8986, the one we own) recently sold shares to new investors like Oaktree to pay back debt, buy new properties, so no chance of them going bust (YET).

[isa23] 24/9/2008 16:08

what do u mean? It's called Re-plus Residential because Re-plus is the manager. Now that Re-plus is under it will probably be called Oaktree Residential, or whoever becomes the new manager. Interesting that Re-plus Residential (8986, the one we own) recently sold shares to new investors like Oaktree to pay back debt, buy new properties, so no chance of them going bust (YET).

[jonwig] 24/9/2008 15:04

ISA23 - yup, the Dawnay Day affairs crossed my mind (I'm in CPT, was DDC) but the Japanese don't quite do business like we do!!

[isa23] 24/9/2008 15:01

I think it is similar to the Dawnay Day case here. Management company went bust, but the investment companies are all operating as usual (albeit under different names)

[jonwig] 22/9/2008 14:18

Dated 8 Sept:

When property markets turn downward (or upward) investors tend to lump REITs, physical real estate and stocks in real estate companies all in the same basket, i.e., real estate plays, and avoid the lot. The Tokyo Stock Exchange J-REIT Index is now down a whopping 52% from a mid-2007 peak, and up to 90% of the 42 listed REITs are trading at a discount to NAV.

There is no denying that credit has dried up for real estate developers and the number of property transactions has dropped off sharply. This is a double whammy for newly emerged real estate developers whose business model was dependent on a) readily available credit and equity, and b) active trading in real estate properties. As a result, many are failing and will continue to fail.

The J-REITs with the highest discounts to NAV are those whose sponsors are also the designated management company, and investors are leery that a failure in the management company/sponsor will negatively affect the J-REIT. However, some discounts to NAV more than account for what is actually limited risk to J-REIT holders from such an occurrence.

On the other hand, the deep discounts to NAV are attracting foreign value investors looking for ways to acquire or consolidate deep discount REITs to obtain their properties for less than current market values. Despite the recent plunge in J-REIT unit prices, foreign investors and domestic J-REIT fans believe there is still a lot of REIT secular growth potential in Japan. Japan's J-REIT market is still miniscule relative to Japan's property market, and to Topix market cap at under 1%. In Australia, REITs are equal to 9% of the ASX, and they are 2.8% of the S&P 500 in the U.S.

Where else in the developing world, much less a major city, can you find yield spreads at 5% and above? It was this level of yield spreads which first attracted foreign investors to Tokyo before the mini property bubble, when the foreign investment banks and `vulture` funds last started looking at Japan and spurred development of real estate securitization. Thus to value investors, J-REITs are looking pretty good.

[jonwig] 16/9/2008 12:22

" ... undiluted net asset value per share on 11 September 08 was 29.78 pence"

A couple of bad days since then for the J-REIT index, but the NAV seems to be pretty resilient. Share price here doesn't seem to be following the trades, which are marked as buys today. (I know that can be misleading!)

[joan of arc] 12/9/2008 17:01

Yes, there is not much visibilty here of the financing arrangements and exposures.

[jonwig] 12/9/2008 07:13

JoA - I e-mailed the company last week about loan conditions (at each level) but received no reply.

(From my experience, UK companies always reply, even if it's a "we can't respond to individual ...", but overseas ones don't often.)

[joan of arc] 11/9/2008 22:31

Cheers J. It would be nice to have some clarification from the management around all this re the risks.

[jonwig] 11/9/2008 18:07

Thanks - here's the note:

The subsidiaries each have a facility with Citigroup to allow them to borrow Japanese Yen up to the value of the J-REITs held by them. The effective interest rate on this facility is base rate plus 0.25%, which was the equivalent of 0.6285% as at 31 December 2007. The bank borrowings are repayable on demand.

That should have been prominent amongst the risk factors in the prospectus.
The interest cover on that will be considerable, of course.

From what I gather, most of the J-REITs' problems are down to being unable to raise further capital, rather than have loans called. Whether that holds true for PEJR, I can't say.

[arichardwilson] 11/9/2008 17:50

Note 6 to the Annual Report and Accounts is where the reference to 'repayable on demand' comes from.

[jonwig] 11/9/2008 16:54

Regarding the query on PEJR loan covenants ...

Page 49 of the prospectus (Principal Bases and Assumptions, #7) says:

The Company will enter into borrowing arrangements for 100 per cent. of the equity value of the Company at a fixed interest rate of 2 per cent.

Earlier references to borrowings suggest that the target gearing level is 100%. I can't find any references to conditions imposed on loans.

It's worth noting that if PEJR reports an unchanged gearing level (latest was 82%, I think) in a falling market, that means the level of borrowings has been reduced.

[jonwig] 10/9/2008 19:14

Covenants will be in the prospectus, if anywhere - I'll look tomorrow.

Meanwhile a long article on J-REITs (and others) in today's FT:

[joan of arc] 10/9/2008 18:42

Where did you dig that up re "payable on demand"? Who does business like that!!

[robertsbb0] 10/9/2008 16:39

Yes,I'm very concerned. I would like to see details of the covenants on these borrowings.Does anyone know where I can find details of these?

[arichardwilson] 10/9/2008 16:17

Ia anyone worried about the company's own borrowings via its subsidiaries - repayable on demand. I can't figure out how they manage it with such volatile assets.

[isa23] 09/9/2008 10:10

seems instead of 10% down, NAV is actually up!

[dcomd99] 09/9/2008 08:12

After the F&F effect.....

"Also on the ropes were Japan's listed real estate companies, which are showing extreme vulnerability to the recent drop-off in the housing and commercial property markets. "

[isa23] 05/9/2008 11:08

Not all their holdings were down today. Some actually closed higher. 8975 was down more than 8% on a volume of just 44 shares! But last week's NAV was based on Thursday and missed Friday's 6% jump. Yen has also stengthened a lot during the past week. We may see NAV down next week, but judging by the Buys today and yesterday I think the market has got used to wild fluctuations in NAV

[jonwig] 05/9/2008 11:05

Err, not really, Jack.

£ has dropped about 20% against Yen (230 to 190) over the past year.
J-REIT index has dropped by 10% (= 20% fall in NAV thanks to gearing) over the past week! But share price has hardly moved.

Looking at trades recently (buy minus sell):

26/08 ... (12k)
27/08 ... (26k)
28/08 ... (35k)
29/08 .... 159k
01/09 ..... 92k
02/09 ...... 7k
03/09 ......54k
04/09 ..... 34k

I know that reporting of buy/sell is suspect, but in the case of PEJR it looks pretty reliable. And it also suggests MMs might be getting short of stock if this persists much longer.

[jackpipe] 05/9/2008 10:44

have you not answered your own question? fall in index, fall in sterling, = no change?

[jonwig] 05/9/2008 10:37

The PEJR NAV was 27.42p last week. I think it will be another 20% lower now (10% fall in the index), so 22p, say.

Why isn't the share price tracking NAV at present? Because, I suggest, there's some buying going on.

Also, the 7p pa dividend was suggested when the £ was 20% higher than it is now: a maintained Yen payment would translate into a £ payment of over 8p, assuming the gearing hasn't been reduced further. (I'm not, actually, completely confident they will maintain the payout.)

[joan of arc] 05/9/2008 10:20

If I said yesterday that the TSE REIT index was in meltdown, then today it went over a cliff! So hopefully PEJR will fall by about another 10% and then we will have a screaming buy.
In the few days that have passed since Oaktree piled in the index has fallen about 10% - unbelievable!