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Accordia Golf Trust DPU plunged 32.7%.

Tuesday, November 14, 2017

I checked my Facebook account earlier this morning and was greeted by a deluge of messages regarding Accordia Golf Trust.


How like that?

Reader #1:
hey AK can i ask you something regarding Accordia's latest results? One thing I didn't understand was, why is the DPU down so much from last year despite the profit and revenue being higher?

Due to repayment of membership deposit.

Reader #1:
hm I see.
meaning more of its members are withdrawing their deposits, i.e. revoking their membership.

At this moment, I am treating this as a one off event.
Management said it is unusual.

Reader #1:
yeah probably a large number of it hit the due date for withdrawals or something.

Probably the case. 🙂

Reader #2:
Hi AK, like to ask you about accordia golf trust. 

In their recent results, they mentioned that "Total distributable income available during 1H FY17/18 was JPY 1,471 million, which was 27.3% lower than 1H FY16/17. 

The decrease of distributable cash flow was due to payment of borrowing upfront fee and unusually large repayment of membership deposit.". 

Any idea what the "unusually large repayment of membership deposit" refers to?

Members can call for repayment of membership deposits after a lock-up period of a certain number of years.

I am treating this as a one off event since the management said it is unusual.

If I have put all or most of my money in Accordia Golf Trust, this could be depressing.

Since I have a portfolio of many businesses generating income for me, I am able to look at this development with equanimity.

What now?

It is back to K-drama and MMORPGs for me.

Bad AK! Bad AK!

See slides presentation: HERE.


AK71 said...

Gabriel Tham:
hopefully they can maintain members...scared more and more member withdraw and run!

Returning deposit is not termination of membership.

RP said...

Hi AK,

I was not overly bothered by the return of the deposits, this is a foreseeable event.

But I was a little perturbed by the YoY 14.7% drop in October of utilization.

Hope that was just a passing shower or some similar natural event......

Gitana said...

Sorry, AK, I don't quite understand. I thought the company only return the deposits to members when they terminate their memberships?

laurence said...

AK71 said....
It is back to K-drama and MMORPGs for me.
Bad AK! Bad AK!

Such minute blips are of no consequence to AK's Godzilla-sized portfolio.
Readers are unnecessarily taking up AK's precious K-Drama and MMORPG time.
Bad Readers! Bad Readers!

AK71 said...

Hi Richard,

The weather plays a part, for sure, and come winter, utilization rate should be lower.

AK71 said...

Hi Gitana,

From what I understand, there is a lock in period for deposits.

Members are allowed to withdraw these deposits after the lock in period but they remain members.

AK71 said...

Hi Laurence,

Haha. You have a good sense of humor. ;)

RP said...

Hi AK,

Yep, it was the weather. I emailed Accordia and they replied that due to the typhoon there were closures of ten days.

AK71 said...

Hi Richard,

Thanks for sharing with us here. :)

csky said...

Oh I didn't know you could just email them with your questions!

Cos my concern is with the membership repayment chart. Are the grey bars cumulative over the years? Meaning there is still 1200 (FY15/16) + 1200 (FY16/17) + 2650 (FY17/18) +750 (FY18/19) deposits to be claimed?

I am also wondering why aren't a portion of each year's earning set aside in anticipation of the deposit repayment instead of being hit out of the blue like that. And if so, what other unexpected expenses should be expected? Maybe I should email them too. ;p

AlexLer said...

Just curious, shouldn't membership deposit be in a segregated account so it does not affect income for distribution and also ensure they still have money to return deposit to members even when business is not good?

Also, if you look at the difference in membership deposit (in both current and non-current liability) on page 10 of slides, it is only -466 JPY mil from Mar to Sept, not 1345 JPY mil shown on page 5. Am I missing sth?

AK71 said...

Hi csky,

Well, I believe that although there is no mandate, they aim to pay out at least 90% of their distributable income.

So, quite simply, I suppose whenever they have requests for redemptions, distributable income would reduce accordingly.

As long as redemptions do not spike, distributable income should not reduce drastically like it did in the last quarter.

Yes, please send them an email with your questions.

Always good to hear from the horse's mouth. ;)

JCK said...

Does this mean that they have been using members' deposits to pay dividends?
That is very sneaky.
Reason that cash flow is of importance.

AK71 said...

Hi Chin,

They could set aside money to account for future redemptions but to do that, distributable income in the near term would have to reduce quite a bit. So, it could be a case of having less volatility but a lower DPU.

As it stands now, for someone who wants a greater level of predictability in income, the unpredictable nature of deposit redemptions plus the fact that AGT's income is dependent on weather conditions, AGT might not be an ideal investment for income.

AK71 said...


I don't think they are sneaky.

An increase or decrease in membership deposit impacts overall cash flow.

Since a business trust is supposed to distribute cash flow and not earnings, an inflow or outflow of membership deposits will affect distributions.

csky said...

This is what I found out after speaking to them:

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.

AK71 said...

Hi csky,

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.

AK71 said...

Hi csky,

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.

csky said...

Thanks for sharing your thoughts. Looking forward to your post next month when you talk about it again ;)

AK71 said...

Hi csky,

This quarter is turning out to be one that is full of activities.

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