Accordia Golf Trust: Reasonable or realistic price?

This is in response to a reader's question.

As it is going to be about managing expectations, I think it is important enough to be a blog.

In a recent blog on Accordia Golf Trust in response to a friend's question as to whether it was realistic to expect an offer price for Accordia Golf Trust's golf courses which would translate to $1.20 a unit at the Trust level, I explained that although I didn't know if it would happen, it certainly wasn't an unreasonable expectation.

If you are a new reader or cannot remember why I said that, I have provided the link to that blog at the end of this one.






Now, being reasonable and being realistic are quite different.

I said in the same blog,

"... to be realistic, when selling an entire portfolio, it is usually more difficult to command a big premium compared to selling the properties individually."

and I also said,

"Nonetheless, a compelling offer has to be one that is substantially above the NAV."

What is considered "substantially above the NAV"?

Well, there isn't a right or wrong answer and it is going to be really a matter of opinion.






For me, I feel that a 10% to 20% premium to NAV would be considered substantial enough to be pretty attractive if we were to use our past experience with Croesus Retail Trust and Saizen REIT as yardsticks.

In an earlier blog on Accordia Golf Trust, I daydreamed about the possibility of selling the golf courses at a 60% premium to their valuations.

Remember, I said I was merely speculating and that it was a daydream.

It might have been a reasonable expectation but it might not have been a realistic one.

Even as we manage our expectations, we can only hope that what Accordia Golf Trust received was not a lowball offer.






The next thing I am going to talk to myself about can be related or unrelated to the blog topic at hand, depending on our perspective.

You might or might not know about the "Reasonable Person Test".

I learned about the "Reasonable Person Test" when I did Business Law as a module donkey years ago.

If this is something new to you, it is probably good to learn about it.

The question to ask is, realistic or not,

"Would a potential jury agree that $1.20 a unit is a reasonable asking price?"

Here is a video on the "Reasonable Person Test":







Related post:
Accordia Golf Trust: Offer must be way above valuation.

IREIT Global is going to Spain! Excelente!

In early October, I shared my reasons for significantly increasing my investment in IREIT Global.

In that blog, I also said:

"I do not know for sure whether the new management team is going to grow the REIT but it is a reasonable assumption that CDL would not have invested so much in the REIT if they had expected it to stagnate."

Well, IREIT Global is growing.

Yesterday, on 7 December 2019, IREIT Global did a presentation on a proposed acquisition of office buildings in Spain.

It is a portfolio of four freehold multi-tenanted office buildings in Spain, two in Madrid and two in Barcelona.

A joint venture between IREIT Global and Tikehau Capital, the REIT will have a 40% interest.

Total cost of IREIT Global's 40% interest in the joint venture is 57.6 million Euros.

IREIT Global will be funding the purchase of its share initially with the help of a bridging loan from CDL.

The loan has a tenure of 18 months and bears an interest rate of 3.875% above EURIBOR per annum.

Although EURIBOR rates are negative, the effective interest rate of the bridging loan is still pretty high.

I estimate it to be about 3.6%.

12 months EURIBOR rate is now negative 0.269%.

Source: EURIBOR rates






I feel that the bridging loan is pricey but it is the price we pay for speed as it has been stated that the acquisition requires speed and execution certainty.

No dilly dallying, please.

Buy it before someone else does kind of thing.

Maybe.

Anyway, IREIT Global will have to look into refinancing the bridging loan once the acquisition is a done deal.

The REIT should be able to secure a loan with a lower interest rate.

After all, the REIT actually refinanced at a lower interest rate of 1.5%, down from 2% not too long ago.






Moving along.

As an investor for income, I am particularly curious about the REIT's DPU after the acquisition.

Fully funded with debt, IREIT Global's 40% share of the acquisition will be mildly DPU accretive but gearing level will increase rather significantly from 36.5% to 42.9%.

If funded with a mixture of debt and equity, the exercise will become DPU dilutive while the gearing level will increase only slightly from 36.5% to 37.6%.

However, if the REIT should refinance the bridging loan successfully, post acquisition, there should be a positive impact on DPU.

It might be a small positive impact but it should be positive, nonetheless.

With IREIT Global's distribution yield already relatively high, realistically, it would be difficult to acquire without some yield dilution, especially in Germany where property prices are rising relatively quickly.

As rents are not rising nearly as quickly, the NPI yields are being compressed relatively rapidly.

This, I guess, is why the acquisition being presented here is for a portfolio of Spanish properties.

Spain is a weaker economy compared to Germany but the Spanish economy is still growing and unemployment is coming down.

The overall occupancy rate of the four freehold multi-tenanted properties being acquired is 80.9%.

So, there is much room for the management to work on filling unlike the REIT's German properties.

As the passing rents are lower than the market rate, we could also see positive rental reversions over time.

Of course, diversification to reduce concentration risk sounds like a good idea too.

Overall, I like the acquisition.

Excelente!

Chop chop.

Get it done.

Then, refinance the relatively expensive bridging loan.

If there is going to be any equity fund raising to do this, I would like for it to be a rights issue instead of a private placement.

The loan isn't a large one and I believe a 1 for 10 or a 3 for 20 rights issue, depending on the pricing of the rights, should be sufficient.

I am confident of IREIT Global's potential to grow well and I want to share in the benefits.

"Boquerón que se duerme, se lo lleve la corriente."

Translation:
"People who do not act fast will not enjoy benefits or will lose the opportunity."

Source: Spanish proverbs.








Related post:
3Q 2019 passive income: IREIT Global.

Recently published:
Eagle Hospitality Trust: His plight and my philosophy.

IREIT Global's announcement:
Proposed Acquisition Of Four Office Buildings Located In Spain.

Eagle Hospitality Trust: His plight and my philosophy.

Since my last blog on Eagle Hospitality Trust, I have not looked at it.

I am looking at it again in response to a reader.

The reader who invested in Eagle Hospitality Trust left me a comment but requested that I do not publish it so as not to reveal his identity.

He bought into Eagle Hospitality Trust at 70c a unit this year in July, thinking that he got a pretty good deal.

He bought more when the unit price declined to 66c a unit later in October.

That time in October, he invested for his children using the money in their savings accounts.

When the unit price plunged later on in the same month, he looked on in horror.

Imagine his consternation as the unit price went on to hit new lows soon after.

The massive wealth destruction in such a short time would make any grown man cry.

It must have been horrible.






When the reader bought more at 66c a unit in October, he was unaware that Eagle Hospitality Trust's insiders were already paring down their investments in the Trust in August.

He is more vigilant now.

He has been closely following the news since the Trust's unit price crashed.

The following is the reason why he wrote to me.

Apparently, on 3rd December 2019, Compass Cove Assets Limited which is wholly-owned by Norbert Shih Hau Yuan, sold 35 million units at 52 cents per unit in a married deal, in the process ceasing to be a substantial unitholder as his stake became less than 5%.*









The reader was hopeful when Eagle Hospitality Trust's unit price rose from the depths but he is now in distress once more.

He believed that the Yuans would stop selling their stakes in Eagle Hospitality Trust.

With this latest news, he doesn't know what to believe anymore.

It seems that Norbert Yuan has taken full advantage of the recent recovery in Eagle Hospitality Trust's unit price to sell a rather big chunk of his remaining investment.

From here on, any further sale on his part need not be reported as he has ceased to be a substantial unitholder.

Will the selling continue?

Of course, henceforth, there is no way the reader or anyone of us, for that matter, will ever know.






Obviously, my blogs on Eagle Hospitality Trust last month did not provide the reader with any comfort.

So, why write to me?

What can I say to comfort him now?

Why did I not invest in Eagle Hospitality Trust?

Will I ever invest in Eagle Hospitality Trust?

Is there something wrong with the Trust?

Is that why AK is not investing in it?

Well, to be perfectly honest, I don't know if there is definitely something wrong with the business.

However, I do know that I feel uncomfortable about what has happened which caused the unit price to crash.

I don't know if I will ever feel comfortable enough to invest in the Trust but usually if I am uncomfortable with what the insiders do, it will take a lot to change my mind.

I am not an insider and I don't know more than what has been made public.

For my own sanity, I am just staying out of something I am doubtful about.

Yes, when in doubt, I should stay out.

(If you have yet to read my past blogs on Eagle Hospitality Trust, they are hyperlinked at the end of this blog.)






Here in ASSI, please remember that I am only talking to myself about my perspectives on things.

I am not making any recommendations.

I am as fallible as anyone else.

Please read the disclaimer at the end of this blog page.

What readers do after listening to me talking to myself is up to them.

I will say that if an investment is causing us to lose sleep, we are probably overly invested or using money we should not be using to invest with.

Don't let investments drive us insane.

It isn't worth it.

Trust me when I say we cannot put a price tag on peace of mind.

It is absolutely priceless.






Finally, this blog is not just about Eagle Hospitality Trust.

It is more than that.

I like to think that it is about philosophy which we can apply to all other investments we make in life as well.

Don't let something like this haunt us.







Related posts:
1. Is Eagle Hospitality Trust worth it?
2. Eagle Hospitality Trust: Financial engineering.

Also recently published:
1. Accordia Golf Trust: A 60% premium?
2. Accordia Golf Trust: Offer must be way above valuation.

*See Eagle Hospitality Trust's SGX announcement: HERE.

Accordia Golf Trust: Offer must be way above valuation.

Accordia Golf Trust rose 10 cents or 16.7% to close at 70 cents a unit in the last trading session.

A friend who read my last blog on Accordia Golf Trust called me to ask if $1.20 a unit is realistic?

What did I say in reply?

Well, I do not know if it would happen but I think it is not an unreasonable price.

I told him the best test is to try and sell the golf courses in the open market and see how much potential buyers are willing to pay.

This was one of the ways I used to determine that Saizen REIT was undervalued so many years ago.






For example, in a blog on Saizen REIT 5 years ago in 2014, I said:

"I am inclined to believe that Saizen REIT's properties are worth much more since they managed to sell a property in May at 19% above book value and another one in August at 12.8% above book value. 

"This suggests that the book values of the REIT's properties are rather conservative."

Mr. Market will always pay what he feels is the right price for an asset at any particular point in time.

Not sure if valuations can be trusted? 

Mr. Market has the answer. 

This could very well be the same for Accordia Golf Trust.






If we recall, earlier this year in April, the Trust sold one of their golf courses at above valuation too.

"The consideration of the Divestment is JPY 200,000,000 (approximately S$2,415,751).

"The valuation of the Golf Course as at 31 December 2018 conducted by CBRE, the independent valuer commissioned by the Trustee-Manager as part of its annual valuation of its golf courses... is JPY 27,500,000 (approximately S$332,166)."

Full announcement on Accordia Golf Trust's website:
Divestment Of Village Higashi Karuizawa Golf Club.


You might want to read that again.

The consideration was jaw droppingly above valuation.

It could be the case that the book values of other golf courses in the Trust's portfolio are rather conservative as well.








However, to be realistic, when selling an entire portfolio, it is usually more difficult to command a big premium compared to selling the properties individually.

This was certainly the case with Saizen REIT.

Nonetheless, a compelling offer has to be one that is substantially above the NAV.

Otherwise, there is no reason to accept the offer.

Related post:
Accordia Golf Trust: 60% premium or $1.21 per unit?

You might want to read this:
My investment portfolio or investment philosophy?

Accordia Golf Trust: 60% premium or an offer of $1.21 a unit?

Some readers might remember Saizen REIT and Croesus Retail Trust.

They were two of my largest investments in the past.

If you are new to my blog and are interested in finding out more,

See:
History with Croesus Retail Trust.

Also see:
How much did I make from Saizen REIT? Offer by Lone Star.

Although I made good money in both cases, it was a challenge trying to find new investments for income that could even come close to what Saizen REIT and Croesus Retail Trust were doing for me.

To make it worse, they were relatively large investments for me and, therefore, harder to replace totally.






Why the sudden nostalgia?

Well, it seems that Accordia Golf Trust could go the same way Saizen REIT and Croesus Retail Trust went.

Accordia Golf Trust requested for a trading halt and issued a statement.

Part of the statement:

"... it has received a non-binding proposal in connection with a potential transaction which may or may not lead to a divestment of AGT's interests in all of its golf courses..."

I have mixed feelings about this.







I have been increasing my investment in Accordia Golf Trust as I believe it is undervalued.

I believe that it can be a more rewarding investment for income, given time.

See:
Why invest in Accordia Golf Trust?

I kept increasing my investment and, recently, it rose into the next bracket in my list of largest investments.

See:
Largest investments (4Q 2019).

My investment in Accordia Golf Trust is now basically similar in size to my past investment in Croesus Retail Trust.

A video clip by Accordia Golf Trust:







I hope the offer is going to be similarly compelling or more compelling if it should happen.

If we recall, Accordia Golf Trust's parent was sold to MBK at a 60% premium to NAV.

Could we see a similar premium for Accordia Golf Trust?

With a NAV per unit of 76 cents, that would mean an offer price of $1.21 or so.

Round it down to $1.20 a unit?

Sure, it is OK.

I am not greedy.

Well, I am just speculating.

It is healthy to daydream, I was told.






Accordia Golf Trust last traded at 60 cents a unit.

Still undervalued, I believe that Accordia Golf Trust still offers good value for investors.

However, the news of a non-binding proposal could attract speculators and I would avoid chasing rising prices.

I will just wait and see what happens next.

Recently published:
Are stock prices coming down?

Are stock prices coming down but do we know what we are doing?

There has been talk about how a stock market crash is much overdue for some time now.

What do I think?

Well, I can tell you that the stock market will crash sometime in the future.

What I cannot tell you is when it would exactly happen.

Brilliant, isn't it?

Cannot go wrong with saying something like this.






I always say that we cannot predict when Mr. Market might go into a depression but we can most certainly prepare for it.

Think war chest.

Always have some money put aside in case opportunity knocks.

We don't have to be in a hurry to put all our money to work.

If there is nothing worth investing in, just sit on cash.

I certainly do not have any trouble sitting on cash and collecting dividends.

In fact, I rather like it.

See:
Revisiting AK's strategy with Charlie Munger.






1. If we own stocks of good businesses that are able to generate meaningful income for us

and

2. if we did not use borrowed funds or use funds which we might need for other purposes to do so,

why do we have to worry about stock prices going down?

In fact, we should be happy because we would be able to buy more stocks and have a larger share of these businesses if prices go down.

As investors, we really don't have to look at prices every single day.

If we are speculators, that is a different thing.







So, if we find ourselves worrying about price movements, ask ourselves if we are investors or speculators?

It is a world of difference.

People do frequently get so confused.

The worst thing that can happen, in my opinion, is when speculators think that they are investors.

There is nothing wrong with speculating but we have to know that we are speculating.

Don't know what I mean?

For example, see:
Investing or speculating in real estate?






Now, what about being an investor or a trader?

Well, we can do both.

We can have some trading positions and some investments at the same time.

Indeed, I can be investing in a stock and trading it at the same time.

Remember trading around a core position?

See:
Trading around a core position.

So, should we worry about stock prices coming down?

Well, we should really be asking if we know what we are doing?

"If you worry about corrections, you shouldn't own stocks." Warren Buffett

Watch the video:






Related posts:
1. Ready to come out on top? Part 1.
2. Ready to come out on top? Part 2.
3. Lost life savings and now in debt.
4. My final word on Bitcoin.

APTT, SoftBank, ECB, Uber, Grab, WeWork and irrational competition.

Didn't AK say he is going to be less active blogging?

Yes, I am currently holidaying in Neverwinter.

See:
Winter Festival and Hell Pit.

The "Hell Pit" event has started but it seems that the first week is pretty easy.

So, it isn't taking up as much time as I thought it might.

Anyway, a reader wrote me a very long comment on APTT.

It is obvious to me that he put in a lot of effort researching APTT's business and prospects.

Of course, he also put in a lot of effort writing the comment.

It is only good manners that I reply.

The reply became a bit too long and I decided to blog about it instead.

Read the reader's comment: HERE.






AK replies:

Hi Verseun,

During "Evening with AK and friends" last year, I explained in greater detail why APTT was possibly a good investment at much lower unit prices after Mr. Market reacted negatively to its huge reduction in DPU.

This was in response to my blog titled:

Gobbling APTT as its unit price plunged.

I believed that APTT's ability to fund further investment in broadband infrastructure using internal resources would see them becoming stronger versus their competition in the broadband space (i.e. telcos).





I explained that the unlimited data plans offered by the telcos in the area were really untenable in the long run compared to what APTT was able to offer.

APTT's broadband infrastructure has much lower OPEX in comparison.

The investment to upgrade would be huge but like I said APTT had the ability to fund it without taking on additional debt with the huge reduction in DPU.

Even now, I could see APTT selling backhaul capacity to the telcos in the future.






However, I also said during "Evening with AK and friends" last year that it depends on how long the competition stays irrational in Taiwan.

In an era of easy money (think SoftBank) and negative interest rates (think ECB), we could see business entities able to and willing to burn cash for extended periods of time (think Uber, Grab, WeWork etc.).

Why invest in money losing Grab or Uber and not in money making ComfortDelgro?

WeWork has become WeWorked.

How do we work these cash burning businesses?






Anyway, in a nutshell, I agree with your conclusion.

However, I have said that investing in APTT is relatively speculative.

It should be a good idea to keep the position small so as not to lose sleep over it.

See:
Sell into the rally and stay invested.






Of course, all of us have different ability and willingness to take on risk.

We are all wired differently and should do what gives us peace of mind.

Peace of mind is surely priceless.





Of course, please remember that AK is mental.

Read:

How much passive income is enough?

and maybe also:


UBER and GRAB why you so like that?

Year end holiday update. (Winter Festival and Hell Pit.)

This is just an update to let readers know that AK might be less active here in ASSI after this blog for the next few weeks.

AK will be going away to a faraway land on a holiday for 6 weeks!

That sounds expensive, doesn't it?

Not to worry.

This won't cost AK any money at all.

It is all going to be free!

What?

Where?

How?

From today till early next year, AK will be pretty busy holidaying in Neverwinter, doing adventurous and heroic stuff which is only possible in virtual reality.

Yes, I know!

Bad AK! Bad AK!

AK the Wizard.
Vanquishing evildoers!

AK the Paladin.
Saving innocent folks.

Neverwinter is having their annual Winter Festival which is probably the most rewarding event in their calendar.

This event runs for 3 weeks from 13 December into the new year, ending on 3 January 2020.

This year, however, before the Winter Festival, Neverwinter will have another event that will also run for 3 weeks.

This is a new event that will run from 22 November to 12 December.

Two big events back to back for a total of 6 weeks!

Delirious!

The new event is "Hell Pit" and it challenges adventurers to solo content that will get progressively more difficult.

There is a long reward list but the ultimate reward, in my opinion, for those who succeed is a legendary mount, the Golden Warhorse!







After adventuring in Neverwinter for three years or so, AK still does not own a legendary mount as the drop rate is abysmal.

Well, to be fair, AK has only been a Neverwinter VIP for less than a year and, so, for most of the three years in Neverwinter, AK wasn't trying.

Many adventurers who are less patient simply buy a legendary mount from other adventurers in the Auction House if they want one.

It is all about luck or what adventurers call RNG (i.e. random number generator) and some people are just very lucky to get a legendary mount despite the terribly low drop rate.

The less popular legendary mounts go for about 5 million Astral Diamonds (ADs) and the more popular ones go for as much as 20 million ADs or even more in the Auction House.

AD is one of the more important in game currencies in Neverwinter.





AD can be earned (relatively slowly) through playing the game since Neverwiner is a F2P (free to play) game and everything we need or want in the game can be obtained simply by playing the game.

AD can also be purchased by spending real life money (which AK has never done before and will never do, of course).

For those who are more business minded, AD can also be earned at a faster pace by selling stuff in the Auction House to other adventurers.

Currently, 5 million ADs is worth almost US$ 70.

Imagine people paying 20 million ADs for the more popular legendary mounts.

Talk about paying lots of money for virtual assets.

Bitcoins, anyone?

Mind boggling!






To be honest, adventurers don't really need legendary mounts in Neverwinter but if AK can get one for free, why not?

A legendary mount allows us to move at 140% our usual travelling speed.

If we are attacked while on a legendary mount, we fall off only if we are hit 6 times or more within 5 seconds.

So, unless we encounter relatively large mobs, we don't have to waste time fighting random mobs while moving around in a zone.

Legendary mounts also have combat powers which mounts of lower grades do not have.

AK would very much like to have a (free) legendary mount or two.

Yes, please.

At the moment, I have five characters in game.

Lots of time and resources have gone into nurturing one rather powerful end game DPS character.

So, I am pretty confident that I will be able to get a Golden Warhorse as a reward.

The other two DPS characters were very recently created during Neverember's recruitment event last month in October which I talked about in this blog:

3Q 2019 passive income: Numbers.

Not very powerful, they serve mostly as caddies or what adventurers call "pack mules" (i.e. they exist mainly to carry stuff for my main characters).

When I created them, I purposely did not choose new classes to avoid the temptation to play them more.

They are adequate for some crafting, also some farming for gold and AD in addition to being caddies but they will never be upgraded to end game standards.

The last two characters are a tank and a healer.

They have been around for far longer and are more powerful than the two relatively young DPS characters I mentioned earlier but tanks and healers are not exactly DPS gods.

(DPS = Damage per second and means a character that does damage.)






AK is always plotting in Neverwinter. :p

Wouldn't you like to be adventuring (and plotting) in Neverwinter too? ;p


It is free to play and lots of fun.

Watch the following video and see if it is something that you will enjoy:






Wishing all readers a fun filled holiday season. :)
-------------
UPDATE ON THE UPDATE:

I have just found out that I would not be able to get the Golden Warhorse by successfully completing only one Hell Pit event.

If that sounds like there is going to be more than one Hell Pit event to you, well, you are right.

The Hell Pit event is apparently a recurring event that will return every few months.

I will have to successfully complete five events before I can get my hands on the Golden Warhorse!

This is more like a MMORPG.

The grind!

Well, I guess I was being too generous (or naive) to think that the world of Neverwinter has become more generous in handing out rewards. :p

There is no free lunch in this world, real or virtual. ;p





Related posts:
1. Spent money and will spend more time.
2. Is AK blogging about Neverwinter?