It's rare to find an established property security at a valuation discount of 37%, an earnings yield of 13.3% and a 96.8% occupancy rate in its buildings – and here's one.
Astro Japan Property Group (ASX: AJA) is a stapled security listed on the stock exchange. As defined by the ASX, a stapled security is where investors own two or more securities which are generally related and bound together through one vehicle. Typically, stapled securities consist of one trust unit and one share in the funds management company, which cannot be traded separately.
All of Astro Japan's properties are located in Japan, mostly in the Tokyo and Osaka areas. Retail properties comprise 56% of the portfolio, offices 34% and residential 10%. Both the Japanese economy and property markets have been in the deflationary doldrums for some years however 2013 is starting to see concrete signs of a significant turn. The Nikkei is up strongly and property transactions are heading for the highest level in five years.
Jones Lang LaSalle has identified the Japanese commercial property sector as one of the most promising in Asia, albeit from a low base. Much of the positive vibe is due to the introduction of 'Abenomics' — incorporating aggressive monetary policy, fiscal stimulus and structural reform. Consumer confidence has rebounded strongly and smaller businesses are investing again. On a host of indicators, the world's third largest economy may be entering a significant growth cycle.
Astro Japan 2013 results
- Statutory net profit after tax was $13.2 million, and underlying profit $29 was million. (Directors believe the underlying profit more accurately reflects business performance; statutory profit includes writedowns, currency moves etc.)
- Annual distribution of 17.5 cents per share. Actual earnings per security were 46.5 cents, with the balance mainly used for amortisation of debt and capital management issues.
- Net tangible assets were $5.59 per security (as of 31 July 2013).
- Gearing is now 59.6% (as of 31 July 2013). This level of gearing is not unusual with Japanese real estate due to very low borrowing rates.
- Refinancing is now complete (31 July 2013).
- Average non-cancellable lease term is four years. Only 54% of leases are non-cancellable – in Japan, it's not unusual to lease on a monthly tenancy for years on end.
Astro Japan has been through a rough time over the past few years and has worked hard to rationalise assets and liabilities. Most of this work is now done. With major exposure is to the high-demand Tokyo and Osaka areas, Astro Japan is well placed to benefit from any sustained rise in business activity and property values.
Foolish takeaway
At $3.48, Astro Japan is selling at 7.25 times estimated 2014 underlying earnings and a yield of 5.7% (20c payout). In addition it is priced at 63% of net asset value. If you're looking at international property diversification Astro Japan strongly appeals as worthy of consideration.
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Motley Fool contributor Peter Andersen owns securities in Astro Japan Property Group.
