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Reducing investment in Accordia Golf Trust.

Sunday, November 19, 2017

I am sharing this conversation which I had with a reader which took place in the comments section of my last blog on Accordia Golf Trust because I feel that it is important enough to share as a proper blog.

csky said...
Redemption of the deposit means the member has cancelled their membership. But non-members can still play but at a higher play fee.

The large redemption for FY17/18 was unexpected as the previous years’ redemption averaged about 20%. They think it could be because this batch of redemption included 2 golf courses that had much higher membership deposit fees than other golf courses.

The cumulative amount of membership that has yet to be redeemed is shown in the dark grey bar on top of the chart. Which is 11,215 (JPY million) for FY17/18 and it is also reflected under liabilities in their balance sheet.

This membership deposit is an old scheme. The last batch of this old scheme is reflected by the grey bar of 750 (JPY Million) for FY18/19 as shown in the chart. So new members who join now, they no longer has to place any such redeemable membership deposits.

AK said...
Thanks very much for sharing this. :)

These old members who redeemed their deposits can rejoin as new members without having to make any deposit under the new scheme.

Realistically, we should expect deposit redemption to continue to impact distributions in future and, in time, cease altogether.

csky said...
Most welcome ;)

AK, all of their loans will be due in either August 2018 or August 2019. Is this normal? I am assuming they will try to refinance the loans, but it sounds like they are not giving themselves very much time. What if there is sudden financial crunch? And it certainly does not seem like they have enough cash to make repayment of the loans too.

Term loan A ($15,000M) and Term loan B ($15,000) are both due in August 2018. Term loan C ($15,000) is due Sep 2019. Term Loan A has already been extended once (from August 17 to August 18), no mention of them refinancing it again. The report does say they are refinancing Term Loan B with banks.

AK said...
Yes, I was a bit surprised that they extended the loan for one year only.

Now, together with the risk of membership deposit redemption, it looks like they might have too much on their plate.

Although I think that AGT can be a good investment for income, with all the uncertainties, to add to my investment, I would demand a lower unit price as compensation for the risk I would have to undertake.

With this in mind, I think it might actually be a good idea to reduce my rather big investment in the trust.

I will talk about this again in my regular full year passive income report next month.

Related post:

Accordia Golf Trust DPU plunged.


laurence said...

I can imagine tomorrow's front-page headline news:
"Accordia Golf Trust Plunged After Leading Financial Blogger AK71 Turned Bearish On The Counter"

And reports of the day's MRT breakdowns were relegated to the back-page. Lol.

AK71 said...

Hi Laurence,

I wouldn't say I am bearish. I am just being cautious.

We should always size our investments in such a way that gives us peace of mind.

JH said...

What unit price are u demanding? :)

AK71 said...

Hi Charles,

I remember chomping on AGT at under 60c a unit in late 2015.

It was dreadfully undervalued back then.

JH said...

Accordia Golf Trust (Nov 22: 69.5 cents)
MAINTAIN BUY. 1HFY2018 net profit grew 13% y-o-y but DPU declined 33% y-o-y to 1.65 cents from 2.45 cents in the prior-year period. The decline in DPU was due to a large repayment of membership deposits at two of its golf courses, which was a legacy issue when AGT acquired them. On a positive note, FY2018 marks the biggest lot of membership deposits where the lock-up period will end. Taking into account higher repayment of membership fees, we lower our DPU estimates to 4.9 and 5.4 cents for FY2018 and FY2019, implying a still-attractive 6.9% and 7.5% dividend yield. We maintain a buy on AGT as (1) 7.0%-8.0% dividend yield remains attractive and (2) we believe there is still significant upside to our forecasts as we have not factored growth from any DPU-accretive acquisitions. Price target of 78 cents. — KGI Research (Nov 21)

AK71 said...

Hi Charles,

Thanks for sharing this.

I have a pretty significant investment in Accordia Golf Trust.

So, I certainly hope KGI is right. ;)

laurence said...

Madness, according to AGT's latest 3Q17 presentation, a whopping S$131m of refundable deposits are open for refund:

What is the current balance of refundable membership deposits?
10,648 million yen as at 31 December 2017 (of which 327 mil yen is included in Trade & Other Payable
in the accompanying balance sheet).

What is the balance of refundable membership deposits which have not yet reached the lock-up
period expiration?
772 million yen as at 31 December 2017. One last golf course with refundable membership deposit will
reach the expiration of its lock-up period in the coming fiscal year.

AK71 said...

Hi Laurence,

If in doubt, it is best to stay out.

Wait for the dust to settle.

AK71 said...

Reader says...
Hi I noticed you hold Accordia Golf Trust. I bought it a while ago and have been reviewing my portfolio. The company isn't doing as great in terms of revenue & profit but still pays a very attractive dividend. However, their payout ratio is more than 100%. Is this a concern? However, it seems this company has been a payout ratio higher than 100 in the last 3-4 years (both during good and bad times) Any comments? Thanks!

AK says...
You might be interested in this blog.

tbh said...

Hi AK,

What do you think of their latest renewal of unit buy back mandate?

there is a specific warning which says Unitholders are advised that by voting in favour of the ordinary resolution relating
to the proposed renewal of the Unit Buy-Back Mandate, they will be waiving their
rights to a take-over offer at the required price from the Accordia/Daiwa Concert
Parties who, as a result of the purchase of Units by the Trustee-Manager pursuant
to the Unit Buy-Back Mandate, would increase their aggregate interest in the Units
by more than 1% in any period of 6 months.

Thank you for your time!

AK71 said...

Hi tbh,

I don't think AGT should do share buy back.

Companies should do share buy back when they have too much money and they don't have better use for it.

I don't think this is the case with AGT.

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