I have recently stumbled upon a Business Trust with an interesting business model which is Accordia Golf Trust. This is the first Business Trust comprising of investments in golf course assets in Japan. Accordia Golf Trust is 49% held by Accordia Golf Co., Ltd. (the “Sponsor”) and 51% held by Daiwa Real Estate Asset Management Co., Ltd, a wholly-owned subsidiary of Daiwa Securities Group Inc.
I am not a golf player and know nothing about golf. If you are a novice to golf like me, you probably will wonder where do Accordia Golf Trust derive its revenue from?
Based on what I found from the prospectus, the operating revenue for Accordia Golf Trust comes from three areas which are golf courses, restaurants and memberships. The sponsor, Accordia Golf Co. Ltd. supports the operation of the golf courses. The business model is very unlike other Business Trusts and REITs whereby they derive their revenue based on rental income.
In Accordia Golf Trust, income comes from fees paid by visitors who play golf on its golf courses and thus the number of golf players is a determining factor of its golf revenue. This explains why you can find the Accordia Golf Trust publishing monthly reports of its total number of players for each month.
The other income will be the golf membership. Because the golf courses are based in Japan, unless you are a local, it is unlikely that you will sign up for a membership.
Accordia Golf Trust also derive its income from restaurants that are operated within the golf courses. Based on what I found, an average game of golf takes at least four hours. The players are likely to dine in restaurants located within the golf courses.
Based on the fact sheet as of 31st December 2019, Accordia Golf operates 88 golf courses, all in Japan with 70% in key areas such as Tokyo, Osaka and Nagoya.
Number of Players
Instead of occupancy, we should be looking at the number of players at Accordia Golf courses because the number of players determine its revenue. The number of players in FY19/20 seem to increase as compared to FY18/19 and FY17/18.
If you think the number of players will be impacted by COVID-19, think twice. In February 2020, the number of players was 413,800 and utilisation rate was 74.5%. In March 2020, the number of players was 469,950 and utilisation rate was 76.2%.
Below is Accordia Golf Trust’s 9 month’s financial results. Operating profit for 9M FY19/20 was JPY 9,045 million, which was higher than 9M FY18/19, mainly due to better performance and increase in number of visitors to the golf courses.
|1st Apr 2019|
31 Dec 2019
|1st Apr 2018|
31 Dec 2018
|Profit After Tax||6,345||5,987||6.0%|
|Distribution Per Unit (“DPU”) (JPY)||3.86||2.91||32.6%|
|Distribution Per Unit (“DPU”) (S$ cents)||4.78||3.56||34.3%|
The distribution per unit has fallen over the years especially between FY16/17 to FY17/18. In the annual report, it was mentioned that adverse weather conditions across Japan such as rain and snow have affected its revenue.
|Dividends Paid (SGD cents)||3.77||3.85||6.04||6.63|
As of 31st December 2019, the loan-to-value ratio (LTV) stood at 30.5%. A higher ratio means that the manager (borrower) owes a higher percentage in comparison to the asset’s value. In this case, I think 30.5% is within comfortable limits.
Mr Yoshihiko Machida is the current Chief Executive Officer and an Executive Director of the Trustee-Manager. He has extensive experience in general management and is very familiar with the golf course management business, having worked within the Accordia group for nearly 10 years.
The Sponsor Accordia Golf Co. Ltd is the leading golf course operator in Japan. Recently, there are news that the sponsor is offering 63.17 billion yen (S$783 million) to buy up the assets, including the holding company’s debts. I am not sure what it mean for investors.
Based on the current closing price of S$0.56 and historical dividend payout of 3.77 Singapore cents, this translates to a current dividend yield of 6.73%.
Accordia Golf Trust is not my kind of dividend yielding stock that I will hold for the long term even though the dividend yield can be attractive. It amazes me on how the number of golf players are not affected by the current COVID-19 situation but I expect the golf revenue to be lumpy as unexpected bad weather such as Typhoon Hagibis can cause the golf courses to be closed.
If good weather is on Accordia Golf Trust’s side, the Tokyo Olympics will be a good catalyst for Accordia Golf Trust to further increase its revenue and distribution per unit. Nihon Golf-jo Keieisha Kyokai (Japan Golf Course Management Association) indicated that the number of senior golfers, above 70 years old, has increased from 16,800 in 2017 to 18,000 in 2018. The aging population in Japan is also another thing investors can bet on.