Sunday 6 December 2015

Accordia Golf Trust – Normalization of yields/Projecting its future

Accordia Golf Trust (AGT) has fallen from its IPO highs to 55.5 cents as of writing. Given the drastic fall in price and showing an impressive trailing dividend yield of 10.6%, one may be tempted to initiate a position in AGT. Let’s find out if it is worth it

AGT’s FY15’s distribution statement was lumpy and is difficult to build a projection on. However, this current FY’s first half distribution statement is easier to understand and its figures are not affected by IPO distributions/proceeds from borrowings/etc. From this HY, one can see that the distribution to shareholders is about 2.3 SGD cents (10% income retained).
AGT's FY 16 1H Distribution Statement
AGT's FY 15 2H Distribution Statement
Furthermore, from AGT’s presentation, the second half of the FY is always weaker than the first half's. Hence based on current first half performance, 2H’s distribution is likely to be lower due to the seasonality of visitors. This is further shown by the FY15 4Q result where AGT had a weak quarter during the winter period (4Q income available for distribution was boosted by a very positive working capital change which I do not foresee will be that positive again). Hence I expect 2H’s distribution to be at SGD 1.7 cents (10% income retained)

Visitor ship Data
Hence full year distribution will be 4 cents or 7.2% yield at 55.5 cents.

Business operations
From its financial statements, we can see AGT has a relatively fixed expense base, at 11,000 million JPY mark in each of the past 3 quarters. Hence one has to take note distribution attributable to shareholders is dependent greatly on the revenue generated by the golf courses.

From its three segments, only the restaurant segment has been holding up, but its golf course and membership revenue are showing a slight dip. Due to the relatively fixed cost base, the small decrease in operating income (-5.8%) resulted in a larger than proportion decrease in net profit (-17.7%). This affected income available for distribution to shareholders. 
AGT's Key Financials

To boost distribution, one way is to buy more golf courses from its parent which AGT can do due to its low leverage ratio of 28.8%.

The only visible positive is the upcoming Tokyo Olympics in 2020. Hence for 2019 and 2020, uptick in the revenue segments will be seen; but till then, AGT has to manage the challenges of declining golf course and membership revenue.                   

Minor Pointers
Exchange rate - AGT’s operation is in JPY. Given that JPY is at low rates against SGD, my personal opinion is that the yen will not depreciate much further against the Sing dollar. I believe some appreciation will occur as the Sing economy is in negative territory and a depreciation by MAS will help. However, the change in exchange rate will be small

Interest rates - With Japan embarking on its own QE, I do not expect much spike in interest rates for AGT’s term loans, so interest expense should be the same. AGT’s leverage ratio stands at 28.8%.

At a forecasted 7.2% yield, AGT seems to be a decent investment proposition. It's yields and leverage is better than an upcoming IPO (the latter's yield boosted by strategic investors' decision not to take their entitlement). However, comparing a golf course trust against a retail trust is not advisable.

Comparisons aside, AGT have positives such as the upcoming Tokyo Olympic 2020 which will boost its revenue and profits (AGT has a relatively fixed cost base) and further headroom to purchase more golf courses. 

A negative of AGT is that its revenue does not have a lease-like nature and hence is not as stable as REITS; it can fall drastically and affect distributions available. Hence investors have to weight factors such as: a) being able to obtain 7% yield from more stable investments such as CRCT, b) the gearing of AGT against these other investments and c) growth potential of AGT due to its low gearing.

I have initiated a small position in AGT at 55.5 cents of 5 lots. Pending further fall in prices, it is unlikely I will add further as I am of the view the market has not fully factored the 2H surprise fall in distributions. I am hoping to get in the region of 50 cents (~8% yield).


  1. Just a thought, since Japan has embarked on it's QE, shouldn't JPY become weaker to SGD?

  2. That's possible too. however, I expect SGD to weaken too due to our weakening economy. And imo the market had priced in the QE effect for JPY as it has been announced. Not a forex expert and everyone is entitled to their own views.

    Hence that's why my analysis on AGT is on its business fundamentals and not exchange rate movements.