A Re-look at Accordia Golf Trust


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It has been about 4 years since I looked at Accordia Golf Trust (AGT) as an investment proposition. Many things have changed since then and I wondered how it has fared since then.

What has Changed

Dividends- The dividend history of AGT has shown there is a slight decline in dividends. Below is the dividend history.

From its latest Financial Year Ending March 2019, it can be seen that dividends for AGT has been on a decline. This is a far cry from the past where Dividends given were generous.

Sustainable Dividends?

From the cashflow statement for FY2018,  AGT gave out JPY$3.4 Billion in Dividends. With the recent release of dividends which is about 2% lower, one can reasonably expect another JPY$3.3- 3.4 billion in dividends provided to investors. However, the question begs- Is the Dividends Sustainable?

In terms of Cashflow wise, it does seems sustainable because AGT is producing about JPY$10 billion in operating cashflow annually before working capital changes, with CAPEX in the past 5 years averaging in JPY$1.5 billion as well as income and interest expenses totalling to JPY$2 billion. It does shows that JPY$3.4billion of dividends (or 3.77 Singapore Cents is sustainable).

Again cashflow depends on the industry outlook and if AGT business does deteriorate by 40% resulting in a similar in cashflow generated, I do expect dividends to be slightly cut

Higher Leverage Ratio

AGT’s leverage ratio has slightly climbed over the past few year and now stands at a 30.4% loan to value ratio. This is a rise from its 29% when I last looked at it. The slightly elevated ratio is similar to the levels that are deployed by our local REITS currently. 

Conclusion

Hence based on current share price of 53 cents and dividends, AGT is offering a 7% leveraged yield. In my view, it does seem about right. In our current global environment of yield hungry investors, we have seen local REITs being bided down to 4-5% yields albeit in more stable sectors such as Retail and Commercial officer space.

The Japanese Golf Industry seems to be in a slight decline based on AGT’s past financial results. Past performance indicates around 0.6-1% decline. However with the pick up in Japanese tourism and the Olympics, my opinion is that revenue will stay in the JPY$50-51 billion range for the next few years. With an operating expense base of JPY$45 billion, the JPY$3.4 billion in dividends does seem sustainable.

Even with a decline in revenue from 2021 onwards, there should still be sufficient cash to pay for dividends and JPY$45 billion debt repayment. With 76% of its land under freehold tenure, AGT has the capability of having perpetual generation of cash to repay its debts. This is unlike our local REITs whose portfolio are majority leasehold land and thus have to depend on our government bailing them out by allowing a lease top up back to 99 years. With such a large proportion of freehold land, AGT has a lowered risk of its assets facing leasehold depreciation or lease expiry, which will in turn result in a loss of revenue.

I do now own any Accordia Golf Trust now but am just observing it to see if it can be part of a dividend portfolio.


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