how safe is bjt, page-4

I should not be here at this late hour - must be addicted to HC forums. Excuse the essay here – wanted to try to fully address the issue. Do your own sums, as I take no responsibility for being accurate.

I've seen some posts concerned about recent sale being 18% below book value. I don't see anything wrong with asking the question here. However my opinion is that these properties are very strongly cashflow positive, so any reduction in value becomes a limiting downward influence against the upward price influence of higher yields. Anyway here are some sums looking at how worried we should be.

From the 12/2/09 interim results presentation pg 10 - 11:
"¥18.6 billion loan maturing in March 2010 represents 20% of total borrowings and has an LTV of 39%". This latest sale was sold from the securities underlying this loan. Debt reduced from Y18.6b to 14.2b. Security pool reduced from 47.7b to 34.3b book value (factoring in sale at 18% disc). LTV = 41.3%. Assuming book value was reduced by 18%, security pool value would be Y28.1B, and LTV would be 50.5%. Security pool book value could fall to Y23.7b, so another 15.6% after the suggested fall of 18% before we were looking at borrowing at 60% LTV (which is conservative for Japanese bankers, who look at cashflow more than LTV).

There is one loan with an LTV of 78% (Due Dec 2012). The book value of the securities was Y32b at Dec 31. Loan of 21.1b. The security pool needs to be at least Y27b. The security pool with an 18% drop will be 26.2b, requiring a cash injection of Y0.8b. BJT has just received Y6b, so if the vals are lower they have the easy ability to top up this loan.

Additionally there is hedging in place that has a current (27 May) M2M of negative Y3b. This needs to be paid out in full if the total LTV falls below 65% within 90 days of (was it) August. Based on 31/12/08 figures, the overall property portfolio adjusted for the sale at bv is Y147b. Total loans are now 86.9b. LTV of 59%. If we discount the properties by 18% - this comes to Y120.5. LTV is 72%. Therefore the Y3b (or whatever it happens to be in Aug) may need to be paid and the hedging closed out.

The loan due to be renegotiated Dec 2010 is Y18b. BJT will have cash to reduce this loan considerably if this was to be required. After this - loan due dates are May, Aug, Dec 2012, with the dec one already mentioned as the only debt with an LTV (78%).

So for the 18% discount to book value scenario as at 31/12/08, BJT has Y4b spare after maintaining the Dec 2012 loan, and the hedging agreement (not counting cash already held).

BJT made about Y2b of distributable income in the first half, so assume Y4b per annum of cash that is available to assist with debt reduction etc if required. So by November if the hedging needs to be paid out (90 days after Aug date), there will be up to Y6b spare cash held, depending on distributions etc (we can assume management will either pay out this money or keep it depending on BJT’s requirements.

*** So this sale has made BJT safe until at least the March 2012 debt comes due, even if the commercial property market has fallen 18% since 31/12/2008. Additional properties do not need to be sold (however cash certainly is good for getting the markets attention, and raising the unit price nicely – so no complaints if more are sold). The strength in the underlying cashflow allows for some serious debt reduction if required, which can be allocated to different debt facilities as required. So refinancing in 2012 is not really a concern either. ***

BTW: The underlying cashflow of Y4b per annum, at AUD = 62.45Y is 12.66 Aussie cents per unit. At AUD = 76Y, this is 10.4 Aussie cents per unit. So a 28.5% real underlying yield exists at present. If you pay 30% tax, this is a 20% yield after tax. Property trusts tend to have an increasing yield over time as well.

Current Book value after 18% discount to properties is 87 cpu at 76YEN per AUD.

So
1. no refi issues
2. 28.5% net yield before tax.
3. current SP is at a discount of 58% to NTA with all property values reduced by 18%.

I'd say - do not think about it for too long, if you do not have a position in BJT. About 16% of my Aussie portfolio is in BJT.

Oyasuminasai!
Banzai!