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Accordia Golf Trust: A DPU of 2.32c and still a buy?

Thursday, November 12, 2015

I was wondering how badly Accordia Golf Trust's revenue could have been affected by the inclement weather in Japan in recent months. That was really what was holding me back from increasing my exposure to the business trust significantly even as its unit price hovered near its historic low.

In its latest results, it was revealed that performance in 2Q was disappointing. This translated into a DPU of only 0.74c for 2Q. For the 1H, total income available for distribution translated into a DPU of 2.59c.

Personally, I was hoping for a 1H DPU of 2.9c or even 2.95c which would have been possible if DPU for 2Q came in at 1.1c. Investing in golf courses for income, I guess the weather is something I must learn to take into consideration.

Accordia Golf Trust also decided to hold back 10% of the income available for distribution which means that DPU is only 2.32c for the period from 1 April to 30 September. 

So, what is the distribution yield?





I believe that it would be a mistake to annualise the DPU of 2.32c because it would be assuming that the weather would continue to be horrible in Japan for the next six months. 

However, if we like to think of it as a worst case scenario, yes, why not? 4.64c. This, of course, assumes that the management continues to distribute only 90% of distributable income.

At 62c a unit, we are looking at a distribution yield of 7.48%. This, I believe is pretty decent and higher than the 7% distribution yield dangled at Accordia Golf Trust's IPO which was, of course, at 97c a unit (which I thought was pretty much rubbish).

So, the question which I foresee many asking is whether Accordia Golf Trust is still a good investment for income? Well, I think it still is.

I do not believe that Accordia Golf Trust could turn in results which are much worse for the next six months but, of course, one can never be too sure when it comes to the weather. Anyway, chances are that things would improve unless Accordia Golf Trust has really bad luck. It is a matter of probability, really.



Accordia Golf Trust's current gearing level is 28.8% and its stock is trading at a 30% discount to NAV. 

About three quarters of the land the golf courses are sitting on are owned by the business trust. The rest of the land are leased from individuals, corporations or the government.

It is apparent to me that Accordia Golf Trust has ample debt headroom. As the business trust has a pipeline of assets to acquire from its sponsor, with the interest rate in Japan so low, I think it is a matter of time before the business trust makes its acquisitions. Fully debt funded, such acquisitions are likely to be DPU accretive.

If Mr. Market should feel depressed about Accordia Golf Trust's results, I certainly hope that he would show his displeasure in the usual manner which would allow me to accumulate at lower prices.

Related post:
Accordia Golf Trust: A distribution yield of 12.16%?

73 comments:

Siew Mun said...

Let's hope for a better spring apart from winter. Got to take the lull season into consideration as we move into winter. Let's they mitigate against exchange risks by hedging :-(

AK71 said...

Hi Siew Mun,

Going by the income generated from Jan to Mar this year, you are right to suspect that income could be lower during winter. I guess we should brace ourselves for possibly a lower DPU then.

AGT doesn't hedge exchange rate risks which could be a good or bad thing.

Sillyinvestor said...

Hi AK,

The result was indeed "bad" given the yen strengthen during Q2

Weather is a valid reason until it become an excuse.

But I agree chances are high that H2 Distribution will be better H1.

Well, 7% I can live with it if it's bad luck with weather.

But their acquisition plan is taking really slow.

Adrian Ong said...

Hi AK,

But looking at their Sep report, the number of visitors YoY drop just 5%+. Was wondering how that would possibly translate to such a drastic drop in DPU?

thegoldfarmer said...

Dear Ak,

what do u think about the SG&A and others expense which was a 16% higher than forecasted. This certainly quite 'far off' from what they budgeted. does that warrant a source of worry about management ability to manage costs.
With bad weather for Q2, you would expect comission fees to 3rd party under SG&A to fall with less bookings. Unless the poor utilisation forces them to advertise more and maintain the a similar expense as per Q1.
Not sure if i am nitpicking or over worry.
Just wanted your perspective on this matter.

AK71 said...

Hi Mike,

I hope this is not another KGT. KGT had zero gearing and I was waiting for it to gear up and to improve its DPU for years. When it announced that it was going to merge with CitySpring, I threw in the towel. -.-"

AK71 said...

Hi Adrian,

I suspect that they probably became more aggressive to maintain the number of visitors. I am not in the know but I suspect that it is better for their top line this way.

AK71 said...

Hi TGF,

The expenses have been well managed up till now. In fact, in recent times, expenses have been declining. All else remaining equal, I hope the higher expense this time is a blip.

I share your suspicion on them being more aggressive to attract visitors with the bad weather. To maintain their top line, it would make sense.

Siew Mun said...

I have to live with 6.6% yield, and in the paper red for this one. Doing my homework whether to add more. :-(

AK71 said...

Hi Siew Mun,

It is hard to say whether its unit price could go lower or not.

However, if we were to annualise a DPU of 0.75c, it would give us 3c. In my mind now, that to me, is the bleakest of the bleak. At 58c a unit, that would give us a distribution yield of 5.17%. If every quarter is like the last one, then, this could well be the case and I would be stuck with a "perpetual bond". ;p

kh said...

The number of visitors in Oct is up 8.9% YoY, which is quite positive.

AK71 said...

Hi kh,

Thanks for spreading some cheer. ;)

AK71 said...

Added to my long position at 59c a unit.

Siew Mun said...

I intend to add after ex-date :-p

talesteller said...

AK, I initiated a long position in Accordia Golf Trust today at 59c/unit too!

AK71 said...

Hi Siew Mun,

That strategy could pay off nicely. With Mr. Market, we never know. ;)

AK71 said...

Hi talesteller,

You have started with a much better entry price. Congratulations. ;)

AK71 said...

AGT’s sponsor is the number one golf operator in Japan and has a stabilised portfolio of some 26 golf courses available for acquisition. AGT’s target is to acquire 50bn yen worth of golf courses by end-Mar 17.

The maximum LTV ratio that AGT can leverage up to is 60.0%.

AGT derives all its revenue and expenses in Japan in JPY. Its debts are also entirely denominated in yen. About 81% of its debts have been swapped into fixed rates. AGT’s average effective interest rate is 3.40% per annum. There are three term loans maturing in Aug 17, Aug 18 and Aug 19, respectively.

http://research.itradecimb.com/

AK71 said...

Dragonfly doji spotted.

"A type of candlestick pattern that signals indecision among traders. The pattern is formed when the stock's opening and closing prices are equal and occur at the high of the day. The long lower shadow suggests that the forces of supply and demand are nearing a balance and that the direction of the trend may be nearing a major turning point."

Source: http://www.investopedia.com/

betta man said...

Accordia hit $0.56 today after XD. All time low.

talesteller said...

Yeah, Siew Mun's strategy turned out to be a good one. I added a little to my long position at 56.5c, too.

AK71 said...

Hi betta man,

I wonder if it could go even lower. Mr. Market is feeling rather depressed.

AK71 said...

Hi talesteller,

With the next income distribution 6 months from now, it wouldn't surprise me if the unit price continues to weaken for a while.

talesteller said...

Hi AK,

Yes, I've been a little too trigger-happy this month. Got to be more patient...

AK71 said...

Hi talesteller,

I know it can be tempting sometimes to buy much more.

However, it is always a good idea to pace ourselves, knowing that we don't really know what the future might bring. :)

Siew Mun said...

I learned from the monkey economy experiment http://www.ted.com/talks/laurie_santos?language=en on why I am impatient. I tend to be very averse to risk of loss and hence trigger-happy. :-p

AK71 said...

Hi Siew Mun,

Oh, none of us like to lose money but we will probably lose some money along the way as investors. No investor makes money all the time.

I think once we understand this, we will be less bothered by price fluctuations. We should be focused more on value and, as income investors, the income generating ability of any investment. :)

Martini said...

Hit 55 cents today. I did a calculation of golf revenue per visitor using the financial information provided. The revenue per golfer drops about 8% from JPY6,174 to JPY5,665. Oct'15 visitors number looks good as it is the 2nd highest in the year. I noted a 441 Mil JPY Repayment of membership deposits in Q2 results. We might need to monitor this number closely. Based on the sponsor financial results, profitability is never an issue but rather the certainty of income distribution is not there.

I did a comparison between the 2 quarters and Operating expense is quite consistent at 11,000 Mil JPY despite the difference in visitors number and Restaurant, Membership and Other Operating income comes in at 4,500 Mil JPY consistently. Based on the average golf revenue per visitor, AGT needs approximately 1.14 mil visitor to break even with the rest contributing directly to the bottomline. I am hoping with the new acquisiton will help to push the price up and better golf revenue per golfer during peak demand period.

AK71 said...

Hi Martini,

Thanks for weighing in on this.

I know for a fact that PGM, the second largest golf course owner in Japan, tried to take over Accordia before but their offer was rejected.

Just a back of the envelope calculation shows me that the current price is very close to what PGM offered. Obviously, doing the IPO was a better choice for Accordia since investors who subscribed paid 75% more than the unit price now.

Based on technical analysis, I see stronger support closer to 50 cents. Since there is almost half a year before the next income distribution and since I already have the exposure I want, I am in no hurry to buy more.

My Wife Sells Insurance said...

Hi all, I am joining in AGT at 0.55 for long term play as 8.44% div yield is pretty good. Reason is that MS has increased their holdings back to >10% levels.

AK71 said...

WJL:
Accordia 2.32 cts DPU
1800 units : $41.76
Div Yield : 3.27 %
I read somewhere accordia full yr dividend is 6.424 cts .. means if next year dividend remains the same .. at the price I bought div yield will be 9.05 %

Assi AK:
I think 5.9c per unit is more realistic
Also, remember the management wants to retain 10% from now on so that they don't have to raise funds from issuing new shares.
So, 5.9c - 10% = 5.3c.
Of course, if the JPY goes up, we could be paid more in S$ terms.

ho2786 said...

lol
this is one rubbish trust like rick marines.

AK71 said...

Hi ho,

AGT and RMT are two very different animals with different assets and balance sheet strength.

ho2786 said...

This is rubbish trust lol.

Ong Kein Kok said...

Seriously, what is happening to this trust? It just keeps falling regardless of market movement. AK71, what is your take on this? Do you see it bucking the trend and rebound in the near future?

AK71 said...

Hi Ong,

I don't know why prices move the way they do. I do know that as the unit price falls, it looks more attractive as the asset value backing each unit remains the same.

Daryl said...
This comment has been removed by the author.
Daryl said...
This comment has been removed by the author.
AK71 said...

Hi Daryl,

Yes, someone asked me about this too because they sold and bought back. I don't know the reason why but I suspect that it could be because they wanted to realise losses to pay less in taxes.

Daryl said...
This comment has been removed by the author.
AK71 said...

Hi Daryl,

The more depressed Mr. Market feels, the more interesting it looks to me. ;)

Siew Mun said...

Patience and steady, I sm still waiting to start adding more to my existing position. Mr Market seemed to be pessimistic due to the Fed rate increase and other factors. i have the similar nostalgic feel in Aug-Sep when Fed is considering to raise rates. Mr Market tends to overreact with extreme swings. Like what AK says do focus on underlying net asset value and me reckon to focus on consistent dividend and dividend growth yield. I started slowly adding SoilBuild Biz Reit @0.74x5000 to my existing position. :-)

AK71 said...

Hi Siew Mun,

Shhh... Not so loud. I am also looking to add to my long position in Soilbuild Biz Space REIT. ;p

I hope Mr. Market continues to feel depressed and sell more to me at lower prices. ;)

Choon Yuan said...

Hi AK 71,

This quarter and the next quarter are the weak quarters for AGT (cold and snowing seasons). While the past 2 quarters were in fact the time when AGT has more visitors. Hence it is likely, AGT's distribution for 2H of its FY will be lower. For me, I am expecting a 4 cents distrbution for full FY

AK71 said...

Hi CY,

It is entirely possible that AGT's full year DPU could turn out to be only 4c. There is too little history to go on and this is one of the risks of investing in a newly listed entity.

AK71 said...

Overnight BUY order at 51c a share filled.

Ong Kein Kok said...

This is really a rubbish stock. Market goes down, it goes down. Market goes up, it still goes down.....consistently.

My Wife Sells Insurance said...

Looks like MS is selling down, 8.5% as of 14 Dec

*sorry AK for double post, please delete the other one

vicster said...

Entered at $0.505. Not sure if it's a good entry point.

AK71 said...

Hi Vic,

Well, I know it is better than mine, for sure. ;p

My Wife Sells Insurance said...

Averaged down at $0.50

vicster said...

AK,

You still a strong believer of this stock? 50c looks like the support? :)

vicster said...

AGT is certainly generating some serious interests with its juicy price now and even juicier dividend yield

AK71 said...

Hi Vic,

All else being equal, as its unit price declines, AGT looks more attractive. ;)

Siew Mun said...

I am still waiting to add more to my existing AGT.

Simp said...

What is the yield now at the current price?

AK71 said...

Hi Simp,

I believe you could find the answer to this if you were to search AGT's home page. ;)

betta man said...

Good news:

http://www.reitsweek.com/2016/02/accordia-golf-trust-records-19-3-increase-in-dpu-for-3q-fy1516.html

betta man said...

AGT announced this morning that the full FY15/16 DPU stands at 6.63 cents. AK's belief in AGT has paid off.

AK71 said...

Hi betta man,

I hope that AGT will continue to bring home the bacon. This is where we see if the management is competent, all else being equal. Crossing fingers. ;)

betta man said...

A potential take over of AGT. No wonder its stock price sky-rocketed these few days..

http://www.ft.com/cms/s/0/5918bffe-4a66-11e6-8d68-72e9211e86ab.html#axzz4Eii1wcyO

AK71 said...

Hi betta man,

I couldn't access FT. Lucky for me, there is REUTERS. ;p

Published 3 days ago:

"Accordia Golf (2131.T) shares rose as much as 13 percent on Friday after sources told Reuters that South Korean private equity firm MBK Partners is planning to buy the Japanese golf course operator in a deal that could value the company as much as 160 billion yen ($1.5 billion).

"As of 0408 GMT, shares of Accordia were up 9.2 percent at 1,178 yen after touching 1,218 yen, their highest since September.

"The company said in a statement that such a plan has been under consideration but that it has nothing to disclose at this stage."

SMK said...

nice reports. good place to sell?

AK71 said...

Hi SMK,

Your guess is as good as mine. ;)

SMK said...

Pretty bullish now near lift off.

Good job holding.
Credit where credit due.

AK71 said...

Hi SMK,

Just plain old dumb luck, I am sure. :)

Desmond Yong said...

Hi AK, it has been almost a year since you started this thread, imo their execution is really slow,

1. Share buy back although is approved but no action still
2. Asset acquisition by Mar 2017, say since last year also no movement with 5 more months to go
3. Takeover by MBK group also die premature
4. Monthly visitor and utilization keeps dropping...due to weather factor again

The only bright side is JPY vs SG has gained almost 12%, what is the your view on this baby now?

AK71 said...

Hi Desmond,

I am pretty OK with the status quo, actually. It is still generating good income for me. I wouldn't accumulate at current price level though. I might add if Mr. Market goes into a depression. Need a bigger margin of safety since AGT's income is less predictable.

AK71 said...

"Presently trading at 0.7x P/B, we are recommending a BUY on Accordia Golf Trust (AGT) with a target price of S$0.77 based on 0.8x P/B (and a distribution yield of close to 10%)." --- Lim & Tan Research

AK71 said...

Accordia Golf Trust:

1H DPU is 2.45c.

Distribution payment is on 15 December.

AK71 said...


Seoul-based private equity firm MBK Partners said on Tuesday it would acquire Japanese golf course operator Accordia Golf Co (2131.T) for about $760 million.

The news of MBK's interest in Accordia emerged first in July, but a month later the deal - initially thought to be worth about $1.5 billion - was scrapped as the value of the Japanese golf course operator surged.

MBK has now said it will launch a tender offer to buy all shares in Accordia at 1,210 yen ($10.78) each, or a 16.9 percent premium to the latter's closing price on Tuesday.

The major shareholders group - investment fund Reno that has 9.93 percent in Accordia, Aya Nomura who has 9.87 percent and Office Support Corporation that has 2.98 percent - have agreed to sell their stakes, MBK said in a statement.


Source:
REUTERS, 29 Nov 16.
-------------------
MBK Partners is a private equity firm specializing in management buyouts, taking public companies private, buying subsidiary businesses through corporate divestitures, and industry roll-ups. The firm primarily invests in companies in the telecommunications, media, banking, financial services, heavy industrials, pharmaceuticals, consumer, healthcare, logistics, retail, technology, and business services sectors. It invests in companies based in Asia with a focus on North Asia where the firm focuses on Korea, Japan, Greater China, Taiwan, and Hong Kong. The firm may also consider investments outside of North Asia with preference on telecommunications, media, and financial services sectors.

betta man said...


AGT is one step closer to privatisation ?

https://www.smartkarma.com/insights/accordia-golf-agt-sp-high-conviction-family-office-favourite

AK71 said...

Hi betta man,

I can only say that, for the price that I paid, AGT is a fairly good investment for income. I don't know what the market is going to do but I am quite happy to stay invested. ;)

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