8981:TSE - Japan Hotels and Resorts, Inc.

[jch548]

I recently purchased shares in this japanese REIT. As I have seen some japanese stocks discussed here I thought I would mention this one.

 

Japan Hotels and Resorts owns nine hotels all located in Japan. The properties range from economy to luxury priced but most are mid to upper middle priced. They recently purchased one property.

 

On April 1 the company announced they have withdrawn estimates of forward profits due to the disasters that have befallen upon Japan. Earlier the company stated they had one property which suffered some earthquake damage but was still operational. The company has two properties north of Tokyo and these I believe are outside the radiation danger zone.

 

Before the disaster the stock had been moving higher. Revenues had been flat but profits were increasing and cap-ex had been declining due to renovations in prior years.

 

The valuation of the shares are what attracted me. Excluding intangibles the shares have a NAV of 340,500 yen. The shares closed at 169,500 yen last night.  NAV is based on 8-31-10 valuations which used cap rates ranging from 5.2% to 6.3%. Cap rates are low in Japan due to the very low interest rates.

 

Japanese reits are required to payout 100% of profits. The company had been forcasting dividends for the year ending 8/11 of 12,640 yen or a total payout of 1.3 billion yen. In the 2010 fiscal year they reported FFO of 3.1 billion yen. With a significant depreciation shield the company can retain a significant amount of FFO. Bare bones maintenance cap-ex is 300 million yen while annual depreciation charges are 1.78 billion yen. Even with the low payout ratio the forcasted dividend implies a nearly 8% yield if paid.

 

LTV should be under 50%. All of the company's debt carries a 2% rate or less. They have a fair amount of debt they will need to refinance this year but I don't think that will be a problem. Interest coverage should be four times or more by my calculations.

 

Many reits in Japan carry low yields. 8981 has 75% upside to reach it's high of the past year. Once the dust settles these shares should reverse course.

[elltel]

interesting. on bloomberg it shows 17bln of loans due in 2012.

the only bond I can see that they have is 2.11 due 2013, trading at 99.978. before the crisis this bond was 100.25 so bond market doesnt seem that concerned. Backed by assets though.

[jch548]

Looks like the shares have quit falling as they had a decent close last night and are presently up 3% tonight. I had read that foreign tourisim to Japan had declined by two-thirds due to the disaster but has already been seen as recovering. How fast things recover is very much dependent on getting the reactors under control.

[jch548]

I guess I'm the only one holding. Thought I would check on the nuclear crisis. Not much progress though they have been able to enter all of the reactors. Still hoping to get things stabilized by the start of the new year. Interesting to see Korea as their number one market for tourism. You have to think that tourism would have increased in 2011 to a new record if not for the disaster. I pasted  an article I found.

 

The company posted March hotel performance numbers. A significant drop off though they did get some flow from those displaced by the catastrophy. A japanese credit rating agency issued a PR indicating no change required at "this juncture." They sited recent refinancing and conservative 45% to LTV.

 

 

 

Visitors to Japan in April plunge 62.5 per cent amid nuclear crisis

 

 

May 19, 2011, 10:16 GMT

 

 

Tokyo - The number of overseas tourists visiting Japan plummeted 62.5 per cent to 295,800 in April from a year earlier, the biggest decline on record, an industry body said Thursday.

 

The sharp fall stemmed from the negative image from the March 11 earthquake and tsunami and ensuing nuclear crisis at the Fukushima Daiichi nuclear plant, the Japan National Tourism Organization said.

 

Since the plant was hit by the March disaster, it has leaked radioactive substances into the environment.

 

The number of visitors from South Korea, the biggest market, dropped 66.4 per cent to 63,700 while that of Hong Kong, the fifth-largest a year ago, dived nearly 90 per cent to 5,800.

 

A series of events amid the nuclear emergency drew international media coverage in April, not tourists.

 

In early April, Tokyo Electric Power Co, the operator of the plant, decided to dump radioactive water into the Pacific Ocean while the government decided on April 12 to raise the accident level to 7, putting it on a par with the 1986 Chernobyl disaster in Ukraine.

 

News reports about such events 'fostered overseas consumers' sense of fear,' the organization said.

 

Japan attracted 8.6 million overseas tourists in 2010, the largest number ever recorded in the country.

 

[jch548]

I'm still holding this one. A couple of new updates were made recently. The reit issued hotel operating data for April. Revenues are rebounding slightly from March which was the month of the disaster. They issue monthly operating reports so you can track how things are progressing.

 

For the year ended 8/31/11 they are forcasting an operating profit of 1,514mm Yen. This doesn't seem too bad as their six month OP was 1,294mm Yen. Net income is expected to drop to 561mm Yen from 823mm at 2/31/11. That's only around a $3mm net loss in dollars for the last six months of the year against a $220mm market cap which is around half of NAV.

 

A dividend of 5,310 yen per share is forcasted for a 3% yield.

 

Overall it looks like they will survive.

 

[jch548]

8981 issued an update a few weeks ago upping their 8/11 fiscal year estimates. It seems like things are turning around at a faster pace. Before the nuclear crisis they had been forcasting a dividend over 12,000 yen. If the world economy doesn't collapse the shares should appreciate.

 

 

Thursday, 21 Jul 2011 02:30am EDT

Japan Hotel and Resort Inc. announced that it has raised the fiscal outlook for operating revenue from JPY 4,760 million to JPY 4,949 million, operating profit from JPY 1,514 million to JPY 1,694 million, ordinary profit from JPY 563 million to JPY 742 million and net profit from JPY 561 million to JPY 740 million for the fiscal period ending August 31, 2011. The positive outlook is mainly due to business recovery from the damage of the earthquake and tsunami. The Company has also raised the distribution per unit forecast from JPY 5,310 to JPY 7,008, for the fiscal period ending August 31, 2011.

 

[jch548]

Another update from 8981. Things have quickly turned around as they are forcasting a 12,017 JPY distribution for the 2012 FY. 12,640 was paid in the 2010 FY. The shares yield 7% at the current price. The forcasted dividend amounts to $16.7mm in total.

FFO after capex should be around $34mm for the year. They retain a healthy amount of cash as the required dividend payout is based on net income which includes depreciation. Market cap is around $240mm and 50% of NAV. LTV is around 40%.

 

7% is a high yielder in Japan. Many of their reits yield 5% or even less and their government debt yield is like 1%.

 

Hotel reits and other property reits due seem to suffer from the deflation problems of Japan. 8981 hasn't been able to increase their top line revenue numbers. 2012 revenue is expected to be down 2% from 2010. They should benefit from the growth of asian economies as the majority foreign travelers come from asia with South Korea being their largest market.

 

 

Japan Hotel and Resort Inc. announced that it has raised the financial guidance for operating revenue from JPY 4,949 million to JPY 4,998 million, operating profit from JPY 1,694 million to JPY 1,761 million, ordinary profit from JPY 742 million to JPY 810 million and net profit from JPY 740 million to JPY 808 million for the fiscal period ending August 31, 2011. The positive outlook is mainly due to hotel business recovery. The Company has also raised the distribution per unit forecast from JPY 7,008 to JPY 7,649 for the fiscal period ending August 31, 2011. The Company has issued the financial guidance for operating revenue of JPY 5,490 million, operating profit of JPY 2,197 million, ordinary profit of JPY 1,272 million, net profit of JPY 1,270 million and distribution per unit of JPY 12,017 for the fiscal period ending August 31, 2012.

[jch548]

I'm still holding this one. The company has issued a few news releases the past couple of months. Seems like business has normalized since March when the tsunami disaster struck.

 

The yield is 7%, LTV is around 40% and the stock is selling for 50% of NAV. Looks like the shares have been in distribution mode since April. Hopefully they move up a bit soon. The average japanese REIT sells at 90% of NAV. Overall the Japanese reits have performed in line with US reits the past six months.

[Green King]

Thank You for your update. I`ll put this one on my watch list. 

Cheers