Thursday, July 24, 2014

Accordia Golf Trust

Short Summary:
AG Trust is the first business trust comprising investments in golf course assets in Japan to be listed on the SGX-ST. The Trustee-Manager’s key objectives are to invest in golf courses, driving ranges and golf course related assets that are able to generate long-term, stable cash flows, while paying continuous distributions to Unitholders and maximising long-term investment returns of Unitholders by generating long-term capital value growth through future acquisitions. AG Trust’s initial portfolio (the “Initial Portfolio”) will comprise 89 golf courses (including the golf course related assets relating to such golf courses) located across Japan (the “Initial Portfolio Golf Courses”), with 86.4% of the Initial Portfolio Golf Courses, based on their appraised values as at 30 September 2013, located in the three largest metropolitan areas in Japan, namely, the Greater Tokyo Region, the Greater Nagoya Region and the Greater Osaka Region.

The Deal:
Offering Price: S$0.97 - $1.00
The Offering: 782,025,000 Shares (Include 41,163,000 Offering Shares to Singapore Public)
Cornerstone Investors:
275,880,000 (25%) Accordia Golf Co., Ltd.
Forecast Dividend Yield:
2015: 9.10% (Including non-recurring items from restructuring)
2016: 7.00% (Excluding non-recurring items from restructuring)
*Based on issue price of $0.97, 1,099,122,000 units after IPO.
Dividend Policy:
AG Trust has adopted the following policy in respect of distributions to be made to Unitholders out of Distributable Income:
(i) in respect of Forecast Year 2015, the Trustee-Manager shall make distributions of 100.0% of Distributable Income to Unitholders; and
(ii) in respect of FY2016 onwards, the Trustee-Manager shall make distributions of at least 90.0% of Distributable Income to Unitholders.
AG Trust will make distributions to Unitholders on a semi-annual basis, with the amount calculated as at 31 March and 30 September each year for the six-month period ending on each of the said dates
- A unique opportunity to invest in the first SGX-ST listed business trust with an initial portfolio comprising golf course assets located in Japan
- Access and exposure to the golf course industry in Japan
- Quality initial portfolio of golf courses to provide stable and attractive yield
- Strong growth opportunities
- Sponsor’s comprehensive support under the Sponsor Support Agreement
- The financial performance of AG Trust is dependent on the condition and outlook of the golf course and golf course related industries, which are in turn susceptible to cyclicality and other factors outside the control of AG Trust or the Trustee-Manager
- Future acquisition of golf courses by AG Trust (through New SPC or otherwise) may not provide the anticipated benefits and may ultimately fail
- New SPC and/or AG Trust may not be able to divest under performing golf courses on a timely basis and on acceptable terms in order to optimize its portfolio
- The performance, commercial viability and profitability of the Initial Portfolio Golf Courses are or will be dependent upon weather conditions and seasonality factors
- Further decline in the golfing population in Japan may adversely and materially affect the golf course business and operations of AG Trust
- AG Trust’s business is subject to fluctuations in Japan’s overall demographics and economic environment
- Average gearing of 35%

An interesting business trust IPO that sells golf courses to retail investors. On the whole, the yield by itself doesn't look particularly attractive. With recurring yield forecast at 7.0%, I can easily get better deals elsewhere. Personally, I do not agree with some of the strengths that the sponsor is promoting. For example "Strong growth opportunities" that is mentioned in the prospectus, does it really have "strong growth" opportunities? In the information disclosed, the sponsor has put in the below graphs:

As we can see, the total number of golfers is on a downward trend even though Japan's population are aging. With the overall reduction in golfers, how is it possible for the trust to sustain strong growth opportunities?

Golf revenues, like what the prospectus has indicated, are highly cyclical. Since the financial crisis hit in 2009, golfing industry has drastically declined and has yet to recover to the pre-crisis level. From the trend, it looks unlikely that the trust will be able to deliver stellar results in the coming few years. Given the available information, I will give this IPO a miss.
Some useful information:
[21 Jul 2014], [9.00 a.m.] : Opening date and time for the Public Offer.
[24 Jul 2014], [4,00 p.m.] : Closing date and time for the Public Offer.
[25 Jul 2014]: Balloting of applications under the Public Offer, if necessary.
[01 Aug 2014], [2,00 p.m.]: Commence trading on a “ready” basis.
Rating for investment: 1.5/10

Disclaimer: You may use the above information as a guide, but please invest based on your own judgment. 

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