Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...
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A recent comment by a reader with a predicament led me to searching the internet for possible solutions. While unsuccessful, I came across an info-graphic by HDB which I find very good. So, I am sharing it here: "If I sink my money into my flat, how will I be able to retire comfortably?"
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.
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