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Accordia Golf Trust (AGT) started trading a few weeks ago on 1 Aug 2014 with an opening price of roughly S$0.97. It has since declined 16.5% to S$0.81. On a post-IPO case study, we look at whether such Trust merits an investment decision.

 

AGT Background

Accordia Golf Trust (AGT) is the first business trust comprising investments in golf course assets in Japan to be listed on the SGX-ST. Its current portfolio includes 89 golf courses (including golf course-related assets) located across Japan which has a value of approximately S$1.85 billion. Among the golf course assets owned, 86.4% are situated in the 3 largest metropolitan areas in Japan (i.e. Tokyo, Osaka  and Nagoya). Accordia Golf Ltd (a sponsor) is a leading golf course operator in Japan which operates 135 golf courses and 26 driving ranges.

 

Investment Highlights

Good location of golf courses

AGT is located mainly in the 3 largest metropolitan areas as mentioned with good access to densely populated cities. This would be able to attract more visitors and generate higher revenue. Moreover, the Group would probably have access to a well-developed and efficient transport infrastructure. Liquidity of the assets could be relatively higher in the event of a sale versus those located in regions outside of Japan’s metropolitan areas.

 

Capitalizing on Japan’s Ageing Population

With Japan’s rapid ageing population, the increase in senior golfers (65+) is expected to be a key revenue driver as senior golfers tend to play more rounds per year (especially those in retirement).

 

High barriers of entry

Golf courses require a large land area which Japan’s natural geographic has constraints. This leads to high land cost and a limited supply of golf courses in the country. Moreover, other large capital outlays such as construction costs (construction cost of an average golf course requires at least US$50 million)  are required. Moving forward, high operating expenses to maintain the quality of the golf courses are required.

 

Key Risks

The golf course business is largely cyclical and sensitive to adverse weather conditions, general economic trends and competition in the golf course industry. Moreover, with the depreciation of the Japanese Yen (JPY) against the SGD and USD, investors would have to take caution of the currency risk since AGT collects revenue mainly in JPY. As golf courses tend to be illiquid assets, there might be cases where the Trust would be unable to divest their underperforming golf courses on a timely basis, which could severely mark down their market value.

 

Value In Action

AGT is a probably one of the more unique business trust which we have seen recently (most of the REIT and business trusts’ assets are mainly properties and utilities). Despite these trusts offering attractive dividend yield at the launch of their IPOs, it is important to pay attention to their downside risks which could cause their distribution per unit (DPU) to decline.

 

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All views and opinions articulated in the article were expressed in Willie’s personal capacity and do not in any way represent those of his employer and other related entities. Willie does not own any shares in the companies mentioned above.

 

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