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Accordia Golf Trust: At what price is it a BUY?

Wednesday, July 30, 2014

Some readers asked me at what price would I be interested in Accordia Golf Trust since I have said that I was not willing to pay the IPO price of 97c a unit, believing that it did not represent good value for money although it promised a 7% distribution yield.

Some asked me if they should start buying once the unit price goes under the NAV per unit of 92c because with its IPO in Singapore just 0.7x subscribed, it could see unit price sinking quite rapidly on the first day of trading.

Of course, I almost never give a clear answer to questions like this.




However, I will say that although it could be nice to buy something below its NAV, when we are investing for income, we really want to see whether the level of income that is being generated is attractive enough and how much of that promised income to be distributed is sustainable.

To do this, I looked into the Trust's gearing. The first observation is the very high gearing level of about 53%. That is similar to Croesus Retail Trust's current gearing level and yet Accordia Golf Trust could only promise a distribution yield of 7%.

Next, I looked at the way its debt has been structured. Long term debt really consists of three term loans of JPY 15 billion each.

The first term loan is for 3 years and the cost? 1.25% +
The second term loan is for 4 years. 1.5% +
The third term loan is for 5 years. 1.75% +

What is that "+" for? Cost of debt is actually a base percentage + the 6 months JPY TIBOR. If you don't know what TIBOR is, it stands for Tokyo Interbank Offered Rate which is forecast to be about 0.3%.

I feel that the TIBOR is likely to stay low for some time as Prime Minister Abe keeps borrowing costs low to encourage economic growth and works towards a targeted sustainable inflation rate of 2% per annum for the country. So, there could be some comfort there despite the high gearing level.

Just like Saizen REIT's loans, the term loans here are amortising in nature. Per term loan, the Trust has to pay JPY 75 million half yearly starting 31 March 2015. This means JPY 75 million x 6 in a year starting 31 March 2015. Per year: JPY 450 million.

On top of this, interest payment if estimated on the high side using 2% is about JPY 0.9 billion or 900 million

With total annual comprehensive income at almost JPY 6 billion, yearly debt repayment will be about 22% of annual comprehensive income from March 2015 to July 2017. In August 2017, the 3 year term loan will have to be fully paid.


Of course, by then, let us hope that the Trust would have found some way of refinancing since it would probably be impossible for them to pay off the remaining JPY 13.6 billion or so in the first term loan using internal resources.

Accordia Golf Trust's guidance is to pay out 90% of its income to unit holders from the 2nd year onwards but what is the distributable income available then? Ah! That is a question people might not have asked as they simply assumed that it would be 90% of the first year's DPU.

At the exchange rate of S$12.20 to JPY 1,000, assuming an annual comprehensive income of S$73.2 million and almost 1.1 billion units in issue, we would get a DPU of 6.65c if 100% of income is distributed to unit holders. If we should expect that only 78% of comprehensive income would be available for distribution from March 2015, then, DPU falls to 5.2c. If we still want that 7% yield, then, unit price has to fall to 74c which is a 24% decline from the IPO price.

Now, if only 90% is to be distributed, DPU could be as low as 5.2c x .9 or 4.68c.

So, at what price would I be interested in initiating a long position in Accordia Golf Trust? Let me talk to my bowling ball and I hope it is in a talkative mood.

Related post:
Accordia Golf Trust: 7% distribution yield.

Pre-owned books Flash Sale!

Tuesday, July 29, 2014

How do these sound to you?

1. Free shipping worldwide.

2. Save on cost. Save the environment.

3. Help promote literacy amongst the disadvantaged.

Buy pre-owned books from BetterWorldBooks and we will be doing all of the above.

Now, till 31st July, BetterWorldBooks is running a DOUBLE DONATIONS FLASH SALE!



Shop the Better World Books Double Donations Flash Sale, save on used books and double your impact on literacy, all with Free Shipping Worldwide!

Related post:
1. Donate a book to the needy.
2. ASSI is a BetterWorldBooks affiliate.
3. Bought another book from BetterWorldBooks.


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