Galileo Japan Trust

Land of the rising GJT…

Galileo Japan Trust FY2015 results

GJT announced its FY2015 results last week.  All in all, it was a strong set of results from the Company with a nice surprise from the rental revisions.  The key positive highlights are:

  1. In the recapitalisation memo in late 2013, management forecasted the annualised pro-forma net profit to be A$18.2 million (assuming A$1: ¥88) and the recurring net profit for FY2015 was $17.8 million (average exchange rate A$1: ¥95).  Even with a higher Australian dollar, they managed to perform in-line with the pro-forma.
  1. GJT to pay out dividend of $0.149 in FY2015, also in-line with its expectations and is 42% higher than $0.105 paid in FY2014.
  1. Weighted average cost of debt falls from 2.7% (FY2014) to 1.9% (FY2015) as a result of an early refinance of Eurobonds in Oct 2014. GJT paid $68 million including accrued interest to acquire all the Eurobonds.
  1. Upward rent revisions on nine office tenancies were successfully negotiated resulting in an average increase over previous passing rent of approximately 13.4%.
  1. The buyback of 1,059,250 units at an average price of $1.79 (below NAV) was completed.

An unfavourable result is that occupancy levels have slightly decreased to 96% (FY2015) from 98.8% (FY2014), details are:

  • Office portfolio occupancy rates: 99.1% (FY2014) vs 97.9% (FY2015)
  • Retail/ mixed portfolio occupancy rates: 98.9% (FY2014) vs 98.5% (FY2015)
  • Residential occupancy rates: 97.7% (FY2014) vs 96.4% (FY2015)

This fall in occupancy is mainly due to the lease cancellation of the single tenant (Tesco) at Funabashi Hi Tech industrial property in Oct 2014 and has remained vacant since.

With regards to the dividends in FY2016, the Company has entered into a forward contract to buy $9.166 million at an exchange rate of A$1:¥87.59.  Based on the current units outstanding of 105.4 million units, this shows that management is confident of paying $0.087 for HY2016; this is a 6% increase over the final dividend of $0.082 paid in FY2015.  Extrapolating this 6% increase over the entire year implies a dividend of $0.157 for FY2016, which in turns implies a 9% forward yield based on current unit price of $1.74.

The dividend yield is very attractive (FY2015 dividend yield – 8.6% and forecast FY2016 – 9%) in the current low interest environment.  Given twin pressures of low commodity prices and record low interest rates, it is unlikely that the Australian dollar will see a material appreciation.  However, although the Yen also has depreciated due to Abenomics, the current low energy and commodity prices should give its economy and currency a tailwind to move higher.

Net asset value has increased from my last post of $2.15 due to slight revision in property values and a fall in the Australian dollar. Nonetheless, using the old net asset value still provides a reasonable margin of safety at current share prices.

Overall, a strong result from GJT.

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