Astro Japan Property (AJA)

Fat Prophets

Friday 25th July 2014

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Fat Prophets

Astro Japan Property (AJA)

What’s new?

Astro Japan Property recently announced the sale of another office property, located in Daikanyama, an affluent suburb of Tokyo. The sale price for the property was ¥655 million, or around A$6.9 million, with net proceeds of ¥31 million, or about A$325,000.

The asset sale follows hot on the heels of the divestments of the Sapporo Toys ‘R’ Us, Prime Stay Tsukiji and Akabane properties. The company has been selling off assets deemed as non-strategic, which is also de-leveraging the remaining portfolio.

The company is looking to opportunities from an improving debt market in Japan to improve the structure and terms of liabilities of its asset portfolio. More asset sales are therefore likely over the next 12 months.

Meanwhile the company has put earnings guidance at $26.8 million to $27.2 million for the full year to 30 June 2014. The company also intends to make a distribution of 10 cents per security.

Outlook

Astro Japan offers up a high quality play on Japan’s property markets which are beginning to thaw after more than two decades of winter. Real estate transactions in Japan soared 72 percent last fiscal year to ¥4.1 trillion yen (~US$40b) the steepest rise in a decade. Japanese investment trusts and foreign funds are snapping up property in anticipation of higher rents and prices.

Land prices are generally tracking up, particularly around large urban cities such as Tokyo, Osaka and Nagoya. This bodes well for Astro Japan which has around 80 percent of its asset portfolio in Greater and Central Tokyo, with another 12 percent in Osaka. Both cities have some of the highest investment appeal due to their large populations and economies.

Japanese properties have become undervalued after two decades of falling prices following the popping of Japan’s property bubble in the early 1990s. With the economy starting to perk up, this is starting to hit home, with an increasing number of buyers coming out of the woodwork.

Price

Astro Japan’s share price has been tracking up lately, and is now up 20% over the past 12 months. Prices are now pressing firmly above the $4 mark and look set for a sustained move higher. A closing of the 30 percent discount to net asset value would also help in this endeavor.

Worth Buying?

Metropolitan Japanese property looks to be on the right track after more than two decades of decline, with tenancy rates in prime properties high and an increasing number of buyers looking at Japanese property as an investment.

A continuation of this trend would bode well for Astro Japan Property’s portfolio, and is likely to more than offset the negative impact of yen weakness in translating results back to the reported Australian dollar accounts.

The discount to net asset value should also narrow as the company improves the terms of its debt and Japanese property makes a comeback. The shares therefore look good value on around 10 times earnings per security guidance of 39.9 – 40.5 cents, and a 5 percent projected yield.

Disclosure: The author,and interests associated with him, hold shares in Astro Japan Property

Greg Smith is the Head of Research at Fat Prophets.

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