Accordia Golf Trust, Can The Weather Get Any Worst?

Accordia Golf Trust (AGT), I am reluctant to invest in it due to the uncertain business that depend heavily on the weather in the natural disaster borne Japan. And also that the DPU is dropping partly by the stated reason and deprecation of Japanese Yen. However the unit price has dropped a lot and warrant a look if it is cheap to own some.

FY2017/2018 Result is So BAD

FY2017/2018 is hit with higher than usually deposit repayment. DPU was also affected by loan renewal fees and lower revenue. DPU for that year is 3.85 cents vs 6.04 cents of FY2016/2017, with a distribution income of 3436 million yen. 

Assuming repayment to normalize, we should add back 934 million to distribution income. Loan term extension fee to Aug 2018, this fee of 384 million is also an one off item, we should add this back as well.

Everything remaining equal, with the one off items added back to distribution income gives 4754 million vs 5178 million in FY2016/2017. DPU is 4.32 cents. Giving a 7.65% yield base on a unit price on S$0.565

Can It Get Any Worst?

You Betcha! The May rainy season, June earthquake in Japan have further dampen the performance, the recent heatwave has not been taken into account but must have affect the business greatly. I can't imagine playing golf in a temperature higher than Singapore in an open field. Distribution income dropped 7.2% with provision for refinancing of all the debt to AUG 2023. 

With rainy season, earthquake in Spring, heatwave in Summer and low season i n winter (practically near zero profit during that period looking at the graph). Hence DPU will definitely drop. Assuming there is a drop of 5% in DPU, DPU will drop from the calculated normalize 4.32 cents to 4.1 cents, giving 7.1% yield.

Too Cheap to Ignore by KGI

Read KGI Analysis

Yep! My views is the same as KGI, FY2018/2019 will be worst in terms of business, but better in cash flow as the repayment normalize. DPU of 3.85 cents will return to 4.1 cents. Possible M&A may help DPU growth. KGI seem to think DPU will recover to 5.2 cents (9.3% yield) beyond FY2018/2019 but the weather is unpredictable however I doubt it could be any worst than the current year (finger cross).  Still 5.2 cents is lower than 6.04 cents of FY2016/2017.


Conclusion

Let's say this year is the worst year ever for AGT, this is the lowest point. DPU will increase once things are back to normal.  7.1% is a reasonable yield for potential recovery but don't expect it to be a fast recovery. One thing to note, if global warming is to increase as well as the intensity of natural disaster. AGT's business will keep being disrupted, this will not be the only period face with challenges. How will the average yield be over the years? Is average 7% yield good enough?

Looking at forward DPU of 4.1 cents, to have a yield between 7% to 8%, TP range of S$0.565 to S$0.51. PB ratio is 0.61.

Vested @ $0.496.