Accordia Golf Trust Got An Offer Price

Accordia Golf(AG) offered Accordia Golf Trust (AGT) JPY$63,167 Million (S$780 Million) for all interest of its golf courses, including debts.  This amount to 71 cents per share. Initially, myself and the online committees were expecting a delist of 80 cents to a high to 120 cents or more and this feel like a low ball offer. However, the offer is regard to the golf courses and not an offer to buyout the whole trust. We got our hands in a situation of Saizen Reit. I need to reevaluate.

How much is the valuation of the golf course? 

The golf courses is valued at JPY$141 Billion in the latest quarter statement. Some have pointed out the JPY$63,167 Million offer is not enough. But the actual value is after deducting debt. The liabilities consist of borrowings, leases, membership deposits and differed taxes. These items are operational incurred debt, which I believe will be buy out together with the golf courses. 

Total liabilities are worth JPY$92 Billions*, which make the golf courses worth JPY$49 Billion. So Accordia Golf is paying JPY$14 Billion above valuation for these golf courses. 

*I make some adjustment due to the change in accounting

What is left?

The other assets (cash, receivables, other assets) total JPY$7.8 Billion after deducting intangible assets. This is worth 8.7 Singapore cents per share. 


Am I right?

I am no accountant. I do not know if the 'debt' includes all liabilities for this case. Such is the difficulty of a retail investor.  According to above assumptions.

Actual value = Golf Course + other left over assets
                     = JPY$49 Billion + JPY$7.8 Billion
                    =  70 Singapore Cents

Offer Value  = Offer price for Golf Course + other left over assets
                    = JPY$63.167 Billion + JPY$7.8 Billion
                    =  80 Signgapore Cents

NAV base on latest Quarter = Equity - Intangible/ total shares
                                             = (JPY$66 Billion - JPY$4 Billion) / 1.1 Billion
                                             = 70 Singapore Cents

Hence my assumption of actual value and actual NAV is correct. And the so call low ball offer below NAV is due to the deduction of intangible. 

Conclusion

After sounding my displease, thanks to user @dennischins in Investingnote pointing out offer is only for the golf course. The clarification of AGT released today wasn't clear and has cause much confusion. Or rather we retail investor are not familiar to the terms.

Hence, AG actually paid 25.6% above value for the golf courses or a 14.3% premium above fair value in terms of unit price.  At 80 Singapore cents valuation, I guess I can't complain as it matches my previous expectations.

However do note in the case of Saizen Reit, they distribute the proceeds soon after divestment but delisted 2 years later. Impatient investor will sold after the distribution. 


I may have may a mistake somewhere. Please point out if there is any. 

EGM for Saizen Reit and distribution of proceed

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Accordia Golf Trust Buyout: Various Signs And Estimates

Some of things I found digging around show most likely the buyer is the parent company of Accordia Golf Trust (AGT).

Impairment of Good will

The Buyout came after 2 Quarters since the impairment of goodwill. The reason to impair othe goodwill is weird. I have no idea why they would do it after IPO for so long, reducing NAV, dustruption is common for their asset (reason can be read here) . Although it would no affect cash flow in any way.

Someone coming in to buy all your asset shortly after the NAV is lower? sound fishy and planned. NAV has reduced from 90 cents to 71 cents and now reevaluated at 76 cents probably due to the strong YEN.

Restructuring of Parent Company 

 Accordia Golf Co. Ltd (AGCL). It was announced on Nov 19 2019  that all shares of AGT is transferred from AGCL to a new entity call Accordia Next Co. Ltd. Then Nov 28 2019, came the announcement of the non-bidding buyout.

AGCL was bought by K.K. MBKP Resort back in 2017.

High Buyout price of Parent

According to AK of ASSI,  AGT Parent, AGCL was bought by K.K. MBKP Resort at 1.6x NAV. Why such a price? Looks high, wow 1.6x NAV. If you look at the chart of AGCL. It was offered close to market price, the share price did not move much after the offer was make. News of the offer was reported on Nov 30 2016.

1.6x NAV as offer price for AGT? need to be realistic here.

Offer Price

We can speculate that the buyer do not want to pay at 90 cents a share resulting in the impairment. If we give a conservative small premium over NAV of 5%, the offer price will be 80 cents. If they decided to throw in the 3rd quarter dividend then a offer price of 82 cents is possible.

The highest yield in Japan REIT is 5.5%, a hotel REIT and as low as 2.7%, a office REIT. The TTM DPU for AGT is of 4.7 cents. At 82 cents the yield will be 5.7%.  A good enough deal for the parent.

Once the deposit of membership is fully paid out in 8 - 9 years. There will be a boost in DPU. A future catalyst of AGT.

AK post about aprice offer of $1.20. We can dream but that will give a yield of only 3.9%. Will they pay for such a yield? 

Croesus Retail Trust

Croesus Retial Trust was bought out and delisted in 2017 with a 1.1x  NAV and a yield of 6.7%. Japan Reit highest yield was 5.5%, retail REIT are even lower. Aeon REIT is currently at 4% yield. Great deal for the buyer, not so great for the shareholder. losing out a great REIT and a great yield, I had a yield on cost of more than 8%

Remeber, Shareholder is always at the losing end. Think Challenger.

Other interesting finds

AGCL has been sitting on its butt doing nothing since 2011 and IPO AGT in 2014.
Source: http://www.accordiagolf.co.jp/english/company_info/history.php

Analyst of AGT is hard to find. You may be interest to read.
https://www.smartkarma.com/home/daily-briefs/brief-singapore-accordia-golf-trust-agt-sp-privatization-likely-at-min-0-76-sgd-unit-leaves-another-13-upside-and-more/

Conclusion

High chance of a deal. 80- 82 cents is conservative and reasonable. Of course, a 1.1x NAV offer price would be even better. 

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Income Portfolio boost by Merger & Buyout

My Income Portfolio has grown really well this year, noticeable is VICOM, Perfect Shape, Valuetronics. The biggest contributor is however Ascendas Hospitality Trust which was 25% of the portfolio which I divested in august. Hence taken its place is Accordia Golf Trust (AGT) at 27% of current portfolio. It was recently announced to have a buyer of all its golf courses. Although it is a good news, if AGT was to delist, I would have to look for new counter to buy with higher risk as well. I hope the deal offer at a great price or failed to be sold isn't that bad too.

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Accordia Golf Trust: When shortists attack and investors panic for nothing.

 

Accordia Golf Trust(AGT) plunged today with the already informed impairment to its books. I did not buy enough during the deposit saga when it plunged to a low of $0.495. I thought the chance is here again and its not even a year but had since rebounded.

The impairment are of mainly goodwill and fair value of golf course. Now, impairment to goodwill or fair value does not affect the cash generation of a business, if the business generate $1 billion of income before the impairment, it still generate the same after with everything else remain constant. So the PB ratio is now 0.82x, up from 0.65x, it generating the same income which the reason I bought in the first place, there is no reason to panic.

IMPAIRMENT! RUN!

What is this goodwill that make everyone panic and sell? The goodwill is from when the trust is form and AGT bought the golf courses above valuation.

Recovery will have to wait

AGT will have another low performance year and a better weather condtion will help 2019. The return of deposit has normalize to about 1 billion for FY18/19, however this is mitigated by higher refinancing cost, finance lease obligation and lower Operating cash flow (OFC) due to the very bad weather in 2018. Therefore the FY19/20 I expect interim dividend to be stable at 1.64cents with total DPU of 3.77 cents which give a yield of 6.44% base on price of $0.585.

All debts has been refinance till 2023, there should be no more refinance cost but the repayment of borrowing with a slightly lower interest rate. If OCF can return to pre-bad weather 2018, that will allow an additional OCF of 300 Million yen + 947 million one time refinance cost - 450 million finance cost = 847 million upside. With a payout of addition 847 million give about 1cent more DPU. If god decide to be kind and give Japan a good weather, there will be higher upside, 2017 weather wasn't good either.

A 4.77 cents will give 8.15% yield. All will depend on the weather and of the update below.
When buying AGT, investor has to accept that the DPU will not be predictable nor constant but accept that it will generate average of a certain % that he is okay with as he hold it through the years.

The increase in impairment loss recognised during the current financial year, as compared to the previous financial year, is mainly attributed to forecasted underperformance of selected golf courses and an infrastructure project announced by the Japanese Ministry of Land, Infrastructure, Transport and Tourism, which will reduce the expected operating cash flows to be generated from Northern Country Club Nishikigahara Golf Course. 

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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.

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