Astro Japan Property Group : AGM Address - Withdrawal of Resolutions 4 and 5

ASX/Media Release

26 November 2013

AGM ADDRESS TO SECURITYHOLDERS

Please find attached the Address to Securityholders to be delivered by the Chairman and the
Senior Advisor at today's Annual General Meeting.

Eric Lucas John Pettigrew

Senior Advisor Chief Financial Officer

Phone: +61 2 8987 3900 (Australia) Phone: +61 2 8987 3902

+81 3 3238 1671 (Japan)

Astro Japan Property Group is a listed property group which invests in the Japan real estate market. It currently holds interests in a portfolio comprising 36 retail, office and residential properties. Asset management services in Japan are generally undertaken by Spring Investment Co., Ltd.

AJA is a stapled entity comprising Astro Japan Property Trust (ARSN 112 799 854) and Astro Japan Property Group Limited (ABN 25 135 381 663). For further information please visit our website: www.astrojapanproperty.com.

I am pleased to report that the 2013 financial year saw the Group deliver its first positive statutory net profit since 2008. This was largely the result of the smallest portfolio valuation decline since
2008, including an increase in valuation of three properties, the first valuation increases in 5 years.
Another significant milestone in 2013 was the completion of refinancing loans established prior to the Global financial crisis. As I discussed in last year's address, a key focus for Astro has been finalising the agreement that had been reached regarding the transaction dealing with the discounted settlement of the loans to JPT Direct Co., Ltd (JPTD) and JPT August Co., Ltd (JPTA) which matured in 2012. Settlement of this transaction was largely completed during the 2013 financial year, with the final stage occurring on 31 July 2013. The final result was that the Group retained an interest in 10 of the 14 properties which were in JPTD and JPTA. We were pleased that this could be achieved with only a small equity injection and a combination of refinancing, asset sales and debt forgiveness.
Now that all pre-GFC debt has been refinanced, we are increasing focus on improving the efficiency of our capital usage. In this regard, we continue to look at opportunities to improve debt terms and, where appropriate, sell assets to release capital and so provide options to pursue more efficient reinvestment, debt reduction, security buybacks or capital return.
Recent indications are that rent levels are stabilising after years of decline and capitalisation rates remain generally stable, if anything trending towards contraction. However, some pressure on property income remains, albeit less intense and widespread than before. Japan's economic activity has shown moderate improvement, supported by firming domestic demand and the stimulus of recently elected Prime Minister Shinzo Abe's strategy to revive the economy by boosting the supply of money and raising government spending. However, given continuing uncertainty in the global economy, Directors remain conservative in their outlook for FY2014 and beyond.
We recognise that Securityholders want continuity of the highest prudent level of distributions and we will continue to make all efforts to meet this expectation within the bounds of a responsible capital management programme.

You will have seen in the formal business of today's meeting that Resolutions 4 and 5 propose a package of changes to the asset management arrangements with our Japan asset manager, Spring Investment Co. Ltd.
The Explanatory Memorandum to the Notice of Meeting sets out the reasons the Directors recommend the proposed changes to the asset management arrangements.
Having proposed these changes, we acknowledge that a number of proxy advisors have recommended against the changes and some major securityholders are required to adopt these recommendations. This has resulted in a proxy vote of only 61.5% in favour which although a substantial majority is less than the 75% majority required for Resolution 5. Therefore both Resolutions 4 and 5 are withdrawn from the formal business of today's meeting and Securityholders will not be asked to vote on these resolutions.
These Resolutions were to provide a stable framework and clear plan for asset sales to be conducted and debt restructured in a concentrated process. The Board and Spring deemed this as the optimal strategy. No doubt, assets sales will continue, especially of smaller non-strategic assets, however, the pace of sales and consequent positive impact on investment efficiency may now occur over a longer period of time which is potentially a sub-optimal outcome.
The Board continues to maintain a very positive relationship with Spring and believes that Eric Lucas and the Spring team have delivered positive securityholder value in the last 4-5 years in difficult circumstances. Your Board will continue to work with Spring to achieve the securityholder benefits that flow from a strong focus on capital management.
Lastly, I would like to thank my Board colleagues and the management team, together with Spring, for their hard work and commitment during the year.
Before moving to the formal business of the meeting, let me now hand over to Eric Lucas who will provide further commentary in relation to the Astro Group's operational performance and bring you up to date with recent developments.

Thank you Allan. Good morning and once again welcome to our 2013 Annual General Meeting.
Firstly I will provide a brief overview of the Group's operational performance before moving on to
our capital management initiatives and achievements.
We reported a statutory net profit after-tax of A$13.2 million for the full year ended 30 June 2013, compared to a loss after-tax in the prior year. As noted by Allan, this is our first statutory profit since 2008. This result was mainly driven by a significantly smaller quantum of property devaluation, the lowest we have seen in over 5 years.
Disappointingly, underlying after-tax profit was 13.7% lower than the prior year to A$29.0 million primarily as a result of the decline in net property income following asset sales and the weakening of the Yen.
On a like for like basis and excluding currency movements, however, net property income was down by only 1.6%, primarily due to the continuing weak operating environment, softness in

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market rents and our continued focus on retaining or finding tenants, even if at the expense of rental levels in the short term. This focus is reflected in the high portfolio occupancy by area, which has increased marginally to 96.8%.
Following the two semi-annual independent assessments of the value of the properties, of which now approximately 80% are located primarily in the Central and Greater Tokyo area, the fair value of the portfolio declined to ¥85.1 billion, which is approximately $931.1 million in Australian dollar terms, following asset sales of ¥11.7 billion and fair value adjustments of ¥1.20 billion at 31
December 2012 and ¥300 million at 30 June 2013.
We are pleased that we have had the smallest overall valuation decline since 2008 and that three properties were revalued upwards, the first valuation increases in five years. This is consistent with other market indications that valuations are close to stabilisation. Whilst occupancy levels remain strong and weighted average capitalisation rates remain stable, we are yet to see broad improvements in rent levels, but this may well occur over time if the concerted efforts to reflate the Japanese economy are successful.
During the last financial year, Astro acquired a 21% minority interest in the lower floor retail and commercial sections of Musashino Towers, two high-rise residential towers in greater Tokyo, with an equity investment of ¥300 million (A$3 million). This property was revalued upwards at 30 June
2013 by 33.5%, highlighting the significant discount at which the property was purchased.
As highlighted by the Chairman, since our last AGM we have completed the settlement of the discounted debt pay-off agreed with the lender to JPT Direct Co., Ltd (JPTD) and JPT August Co., Ltd (JPTA). Pleasingly, this heavily negotiated settlement was achieved on terms that required only a minimal additional equity injection. Following completion of this transaction, the Group retains an interest in 10 of the 14 properties from the original JPTD and JPTA portfolios. Most importantly, as a result of this transaction, if we were to restate as at 30 June 2013 the capital structure taking into account the final part of the settlement with the lender, which occurred on 31
July 2013, it would show portfolio gearing has reduced substantially from 78.6% to 59.6%.
This means that we have now dealt with all of the Astro Japan Group's pre-GFC debt and can focus on value-maximising strategies for the Group. We are doing so against the backdrop of an improving property market in Japan. Whilst our net property income was down on last year, this result largely reflects asset sales, foreign exchange rate movements and the continuing, but moderating, weakness in the leasing market.
An example of this focus is the recent sale of a retail asset from the portfolio, Sapporo Toys 'R' Us, at a premium of 40% to its recent book value at 30 June 2013. While this premium is exaggerated by the significant write-down in the months before the sale reflecting the key tenant's lease termination, the price is still an approximately 10% premium to its value prior to this write-down.
We intend to continue to pursue similar opportunities to sell non-strategic assets to pursue our
capital efficiency focus.
We intend to pay particular attention to opportunities to release capital from debt structures where high interest / amortisation requirements create sub-optimal returns and to make that capital available for more efficiently leveraged investment, debt reduction, distribution increase, capital
return and or security buy-backs.

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I believe the 2013 year has been a transitional one for the Group, as we finally put the global financial crisis woes and refinancing issues behind us. With the capital structure of the Group now stabilised, Spring is now able to focus exclusively on the capital performance of the portfolio to optimise earnings and cash flow through improved financing terms, including where possible lower amortisation.
As always, our goal remains to maximise operational performance whilst managing your capital as prudently as possible.
Finally, I would like to thank you once again for your ongoing support of and interest in the Astro
Group. I would now like to hand back to the Chairman to conduct the formal proceedings of
today's meeting.

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