This article is from the Australian Property Journal archive
A SURGE in expenses has taken a bite out of Galileo Japan Trust's annual profits and the trust is looking at offloading "non-core" assets in a bid to reduce gearing.
In the 12 months to June 30, GJT’s net profit was $12.20 million – down from $33.17 million in the previous corresponding period. This was despite revenue increasing from $49.99 million to $66.87 million, underpinned by a strong increase in rental income to $59.22 million – from $20.76 million in the pcp. However, expenses increased from $11.96 million in FY07 to $47.01 million this year.
The trust’s AIFRS adjusted distributable earnings was $34.35 million – which is 12.5% above FY07.
GJT has announced a final distribution of 4.00 cents per unit taking the total FY08 payout to 8 cents – 11.1% higher than 7.20 cents in FY07 (annualised for part period from IPO December 18 2006 to June 30 2007).
Galileo Japan Funds Management Limited’s chief executive Neil Werrett said despite a more challenging financial environment he was pleased to report another strong operating result.
“The earnings outperformance relative to FY07 and earlier guidance provided in February 2008 has been driven by a strong portfolio performance delivered by higher than forecast tenant retention and growth in rentals particularly in the Tokyo office portfolio,” he added.
During the period, the trust increased total assets by 55% to $996.347 million through the acquisition of five properties for ¥31.8 billion ($A312 million).
GJT’s debt to total assets was 54.6% with the debt service coverage ratio for the 2008 year remained healthy at 3.8 times.
Despite volatility in the exchange rate during the period the trust’s NTA has remained relatively stable and was 90 cents per unit as at June 30 – down 3 cents from 2007.
Werrett said in the current tighter credit market environment it is in the interest of unitholders for the trust to move toward the lower end of its stated gearing range.
“To achieve this, sales of “non-core” assets are being considered and equity released from these sales will provide additional balance sheet flexibility,” he added.
The weighted average term to maturity of borrowings is 3.5 years with 81% of this at a fixed rate (1.96%), inclusive of margin. Two loan facilities are maturing in FY09. Terms have already been agreed with the lender to extend the first of these, a $A26 million dollar facility due to mature in September 2008. The remaining smaller facility to be refinanced in January 2009($A14.6 million) represents 2.7% of the trust’s total borrowings.
The trust revalued 14 assets of which five assets were independently revalued in the six months to December 2007 with a revaluation increase of $A27.6 million, this movement predominantly related to three Tokyo office assets that had significant income growth post IPO. Nine assets were independently revalued in the six months to June 2008 with a decrease of $A27.4 million booked, reflecting an easing in capitalisation rates for certain asset types and locations, but most notably residential assets and those in locations outside Tokyo.
Including the directors’ revaluations, the carrying value of portfolio was ¥93.9 billion ($A921 million), down 1.0%. The weighted average capitalisation rates based on the most recent independent valuations for the various asset classes in the portfolio are Office 4.6%, Retail 5.4%, Residential 6.0%, Mixed Use 5.5%, Industrial 6.2% and Hotel 6.0%. The overall portfolio has a weighted average capitalisation rate of 5.2%.
GJFML’s chief operating officer Peter Murphy said the economy in Japan has recently exhibited signs of weakening following similar trends globally. June quarter real GDP was negative reflecting lower residential investment and private consumption. Following a period of relative strength in the Japanese economy the Bank of Japan’s outlook is for a period of below trend growth with an improved growth outlook from mid to late 2009.
But he said the real estate market in Japan remains sound with Tokyo office in particular continuing to demonstrate growth in rents and robust tenant absorption.
“Some sectors of the market, most notably residential and lower quality assets in regional locations, have recently experienced some downward pressure on valuations. GJT’s investment portfolio retains a bias toward Tokyo and in particular the office sector, which is considered a positive in the context of the current global economic outlook,” he added.
Looking ahead, Murphy said the trust is well positioned to deliver distributable earnings of at least 8.0 cents per unit in FY09.
Australian Property Journal
