Prospect EP. Share Discussion Threads

[wolstencroft] 25/6/2008 13:59

thanks analyst, but remeber re:charges the charge is 1% of GAV (roughly 2% of NAV) but the plus (if prices rise) is the 100% gearing having borrowed at low yen interest rates

[the analyst] 25/6/2008 13:40

And to see more recent price changes more clearly, here are the six month charts:

MID Reit Inc 3227

Premier Investment Inc 8956

TGR Investment Inc 8963

Crescendo Investment Corp 8966

Prospect Residential Investment Corp 8969

Japan Single-Residence REIT Inc 8970

LaSalle Japan REIT Inc 8974

FC Residential Investment Corp 8975

Advance Residence Investment Corp 8978

LCP Investment Corp 8980

Nippon Hotel Fund Investment Corp 8985

re-plus residential investment inc 8986

[the analyst] 25/6/2008 13:29

Here are the charts of holdings in PEJR portfolio: (two year charts)


MID Reit Inc 3227

Premier Investment Inc 8956

TGR Investment Inc 8963

Crescendo Investment Corp 8966

Prospect Residential Investment Corp 8969

Japan Single-Residence REIT Inc 8970

LaSalle Japan REIT Inc 8974

FC Residential Investment Corp 8975

Advance Residence Investment Corp 8978

LCP Investment Corp 8980

Nippon Hotel Fund Investment Corp 8985

re-plus residential investment inc 8986

[the analyst] 25/6/2008 13:16

The way that REITS and this fund are undervalued reminds me very much of the time back in 2003/2004 when Split Cap Investment Trusts were undervalued due to their gearing, cross-selling, debt, write-downs etc. The big institutions were forced to sell giving ridiculous valuations to the Split Caps.

I managed to buy Split caps, where their assets in FTSE 250 companies alone were worth double or treble the Market cap. I even bought one at 0.5p per share that had solid assets of 7p per share. Many of the Split caps were paying dividends of over 30% pa at that time.

So, what interests me here is how low the price can go before climbing back up? I guess the answer is when the last of the forced big sellers is out. I wonder if we are close to that time? All the REIT share prices still look to be in a downtrend to me, rather than having bottomed (will put up the charts in my next post), but they still look to be incredible value for money now. Perhaps drip feeding into them would be a prudent investment tactic

The other question is whether to buy a fund like this or whether to do more research and cherry pick the best of the REITs out there. Perhaps using the PEJR portfolio as an initial base to narrow down the selections. Would this method cut out the 1% management fees and rewards bonuses that are associated with PEJR and therefore represent better value? Also, which would be the best REITS to buy? - those that are not associated with property development, but with buying and renting? Those with the lowest gearing? Those with the highest gearing?

I'm not sure now is the right time to be buying for getting maximum value, but it's certainly the right time to be researching these REITS to buy in whent hey ahve bottomed, imo.

[joan of arc] 25/6/2008 11:20

Thanks Analyst and ISA. At least that starts to explain why these are in such bad shape at the moment. I guess the real n----r in the wood pile is the new building regs. I can't understand why condo prices should continue to fall given that the economy is picking up. Perhaps mortgage rates are rising there.

[isa23] 25/6/2008 10:30

Japanese companies, specially the smaller ones, have traditionally been very conservative in their forecasts, so I would be interested to know what LaSalle's divi forecast for this year was in the previous year. Japanese REITS are required to pay out at least 90% of their profits in divis, so with rents rising it is hard to see how earnings can fall by a massive 40%. There are two problems though. One is the rising cost of debt because of the rise in Japan bond yields. So these companies have to set aside more money for interest payment. The second problem is that some of theses REITS are also developers and house builders. Tighter building regulations (and rising raw materials) have made it more expensive for developers at a time of flat to falling condominium prices because of falling wages. One developer has recently gone bankrupt because of this so at the moment sentiment is very poor. The good news is that real estate prices in Japan have already had their crash and are now down by about 80% since their peak in the 1980's. Rents are also increasing, vacancies are low and office supply in Tokyo is quite limited. I had a look at the REITS pejr is invested in, and most had their lows of the year on June 19th and 20th so NAV should be about 10% higher now. At current price PEJR is yielding about 18%, so even a 50% drop in future divis would still yield a tempting 9% .

[the analyst] 25/6/2008 00:38

Joan, you asked about dividends - I took a quick look at one of their portfolio that has been hit badly recently - LaSalle Japan REIT Inc. (JSX: 8974)

This is the chart. It looks similar to the PEJR chart:



On the dividend front, this page may help answer your question



It says that the cash distribution per unit for the period 1st November to April 30th 2008 is 13,807 yen

however, the forecast cash distribution for the same period next year is stated as 8,500 yen, which is around 40% lower.

I don't know if this type of forecast dividend cutting applies to all of the REITS in the PEJR portfolio. I would imagine some are better and some may be worse. I need to look at more of the REITS in the portfolio, but just from that, it indicates that they expect dividends to be slashed massively next year.

I'll take a look when I get time, but it might help if someone else also checks to see if that is the case - I may have got it completely wrong...

[isa23] 24/6/2008 10:17

From Bloomberg

[joan of arc] 23/6/2008 16:52

This continues on its downward spiral. Given that the nominal dividend yield on this is becoming ridiculous has anyone any idea if the companies in which they are invested are likely to default on their dividend payments to PEJR?
Would they also have the English disease of falling land and house prices and might this bring them in turn into risk with their banking covenants?

[wolstencroft] 22/6/2008 21:48

I think the MMs are tracking the NAV to some extent - gearing is very high so a 1% drop in the underlying investments cause a 2% drop in NAV.I topped up at 43.5 so below looks even better - the yield can only get better the more the NAV drops

[bossman1978] 22/6/2008 21:24

Has anyone any thoughts on the drop? Looks like a good time to top up

[hosede] 16/6/2008 10:48

Fair point Wolstencroft - I don't tend to make such heavy commitments - normally take a "nibble" at first and build up a larger holding in time (if it performs)

[wolstencroft] 13/6/2008 14:57

agreed, but it depends on the quantity - you could buy as many MTL for example as you likes a few weeks about at about 18-19p. Now 15000 is the max at 23p and they will take 100k on the sell side. The L2 often reveals as much as the price.

Currently you can sell 20k but only buy 5k electronically. IMHO the MMs drove this lower on a panic and took on buys they have not yet covered. So they want some more sells at this price.

[hosede] 13/6/2008 14:32

But as with a lot of potential investments which may (or may not) be reaching their bottoms, the chart doesn't suggest there is any rush. Watching from the sidelines at the moment

[stuart14] 13/6/2008 12:32

Great yield though

[wolstencroft] 12/6/2008 22:53

...agreed, but this is less than 1% of my portfolio; as I say is a yield / yen bet. The gearing and effective 2% charge I dont like, but then no investment is perfect.

[joan of arc] 12/6/2008 22:49

Thanks I & W but the graph looks horrible. From what you say these small illiquid companies that they hold are clearly not attracting any interest from other investors. I guess one needs to be alert to their viability or at least their ability to pull out of their respective nosedives.

[sigmund freud] 12/6/2008 20:49

Catch the bottom when you have seen it. The triple moving averages have closed together, now followed by a large fall. Down goes the trend. Now looking at 20p end July if this continues. Good luck with your buys!

[wolstencroft] 12/6/2008 16:42

My guess per share

NAV 42p

GAV 84p
(gearing 100%)

Average Dividend yield on assets 8% = 6.7p
(see )

Less fees of 1% of GAV = 0.84p

Interest = 42p of debt times 2% = 0.8p

Other fees = circa 0.25p

Tax should probably be 0 as this is dividend income but to be honest I dont know

Earnings: 4.8p per share, which if paid out gives a fully covered dividend yield in excess of 11%

[stuart14] 12/6/2008 16:18

Must be a 7.5% Div now no?

[wolstencroft] 12/6/2008 15:53

Joan; The NAV has also dropped because of 100% gearing, double any falls in the underlying assets. In fact I think that some of the cash raised recently will be used to maintain gearing around 100% and may not have been invested, though I do not know

[wolstencroft] 12/6/2008 13:49

Joan of arc: I am, to be honest, not confident of anything at the moment thinking that this is one of the most uncertain times since 1997 or so when investing during the asian crisis. I have no idea if we are entering a period of stagflation or general recession with commensurate deflation. However, I think that yen exposure and yield are very desirable assets in a balanced portfolio, and thus my investment in PEJR. Likewise I have bought into canadian oil trusts in my SIPP believing that oil exposue, especially with a yield, is desirable.

As ISA eluded, if one tried to buy the underlying holdings in quantity the share price of them would probably rise dramatically; thus PEJR despite on it being on no underlying discount to the share prices is a good longer term bet with some liquidity.

[isa23] 12/6/2008 12:50

Joan of Arc, most of the underlying shares are smaller companies, which are illiquid & volatile as well as deeply unpopular (remember Livedoor a few years ago??). They go up and down by 8 to 12% sometimes on no volume at all, sometimes on a 100 share buy or sell orders. They seem to have bottomed out recently, hence the static NAV of around 43p. You can monitor their daily permormance by typing in their codes on this very website (eg, 3227, 8970, 8975, 8963, 8965, 8969 etc). Pejr gives regularl updates on its holdings. Interestingly most were unchanged today, so the fall is more a reflection of pejr's investors giving up hope of a rise in NAV anytime soon. My advise: buy a small amount & enjoy the divi. If it rose too fast, reduce but never sell altogether. If it fell (I mean 15-25% from buy price) top up a bit. It's worked for me.

[joan of arc] 12/6/2008 12:33

ISA & Wolsten, since you are so both so confident in PEJR you surely can answer my question above.