I first started to take note of Accordia Golf Trust in July 2017 as I tried to understand AK's portfolio. Based on his past posts, I note that AK first bought in AGT in 2014 at 74 cents and he subsequently added more at 51cents in 2015 when it plunged.
On 14 Nov 2017, the share price of AGT had a sharp decline from a closing price of 76cents to close at 71 cents. This was on the back of news that the half-year dividend for FY17/18 from Jan-Jul has fallen 32.7% to SGD1.65cents compared to SGD2.45cents in 1HFY16/17.
The management reported that the net income available for distribution for 3QFY17/18 was -323M (Yen) due to larger than expected redemption of membership fee. Speaking to their IR, I learned that:
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.
It is likely that those who wants to redeem would probably have done so, so while there will still be some impact from remaining redemption of the deposits, there should not be as large a sudden drawdown as had happened in 3QFY17/18.
Hence, based on the above table, should there be no further large drawdown, we can expect dividends for Q3 and Q4 to be around the average of the past 2FY since the golf business is somewhat dependent on the weather. In that case, we may expect a dividend of around SGD5.64 cents and if we expect a 8% dividend, price should be around 70cents.
I feel 70cents to 71cents (estimated for full year 10% impact for next FY) is about fair value for AGT given the deposit redemption issue. However, I would prefer a 10-20% margin of safety for this stock at this price because of it's current loan portfolio.
All of their loans will be due in either August 2018 or August 2019. 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.
On 14 Nov 2017, the share price of AGT had a sharp decline from a closing price of 76cents to close at 71 cents. This was on the back of news that the half-year dividend for FY17/18 from Jan-Jul has fallen 32.7% to SGD1.65cents compared to SGD2.45cents in 1HFY16/17.
The management reported that the net income available for distribution for 3QFY17/18 was -323M (Yen) due to larger than expected redemption of membership fee. Speaking to their IR, I learned that:
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.
It is likely that those who wants to redeem would probably have done so, so while there will still be some impact from remaining redemption of the deposits, there should not be as large a sudden drawdown as had happened in 3QFY17/18.
However, if we foresee maybe another 10% or 20% impact to the next two quarters due to deposit redemption, we may expect price to be at 60cents or 65cents to achieve a 8% dividend rate.
I feel 70cents to 71cents (estimated for full year 10% impact for next FY) is about fair value for AGT given the deposit redemption issue. However, I would prefer a 10-20% margin of safety for this stock at this price because of it's current loan portfolio.
All of their loans will be due in either August 2018 or August 2019. 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.
I posted this question to AK and he was also surprised at the loan situation. And if AK is looking to reduce his position, maybe I too should wait around a little to see how things go.
I think compared to the other REITs, AGT is still sort of figuring out how this business trust thing should work, hence, there seems to be quite a bit of volatility as "new" issues crop up. So it is probably safer to enter a position targeting 8% dividend returns with a margin of safety of 20%, which would mean my target price is between 60cents to 65cents.
But if the loan situation does not clear up, maybe things will get even worse? Otherwise I am not sure why AK will want to reduce his position at this point of time.
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