Accordia Golf Trust Q1 gain dives 75.4%; independent adviser approves proposed divestment

Singapore

ACCORDIA Golf Trust's (AGT) Q1 net profit fell 75.4 per cent to 570 million yen (S$7.4 million) for the three months ended June 30, 2020, down from 2.32 billion yen a year ago.

Operating income fell 27.1 per cent to 10.65 billion yen, from 14.62 billion yen in Q1 FY19.

In a financial update released on Friday, AGT's manager said there was a "significant decline" in the performance of the trust's portfolio of 88 golf courses in Japan as a state of emergency was declared in April and May to combat the spread of Covid-19.

The number of players for the quarter fell 12.3 per cent from the year-ago period to 1.42 million, with revenue per player falling 21.6 per cent. Discounts on play fees were given to golfers to encourage higher visitor numbers, resulting in a fall in play fee of 12.4 per cent.

Operating expenses also fell, but at a lesser rate of 14.4 per cent. As a result, earnings per unit declined to 0.52 yen, compared to 2.11 yen a year ago.

In line with the Japanese government's effort to boost domestic travel and tourism, AGT's manager said, it had in recent months rolled out discounts and outreach programmes to attract golfers from the local community.

"Signs have been encouraging as the number of golfers has gradually recovered to pre-Covid-19 levels, although play fee is expected to remain lower than last year," it added.

AGT will hold an extraordinary general meeting on Sept 14, directly after its annual general meeting, for unitholders to vote on the proposed divestment of the trust's interests in all its golf courses to sponsor Accordia Golf for 65.2 billion yen (S$848.4 million) - an implied price of S$0.772 per unit.

A circular to unitholders was issued on Friday. It included an opinion from independent financial adviser CIMB Bank that the proposed divestment is on normal commercial terms and not prejudicial to the interests of AGT and its minority unitholders.

CIMB said the purchase consideration is at a premium of between 9.6 per cent and 25.3 per cent to the range of the appraised value of the golf courses.

The consideration also represents a premium of 9 per cent to the net asset value of the trust's interests and a 16.8 per cent premium to their net tangible asset value as at June 30, 2020.

For illustrative purposes, CIMB in its assessment compared the valuation metrics of AGT with the valuation ratios of two companies in the business of operating golf courses in Japan: Heiwa Corporation and Resorttrust.

It also looked at the valuation ratios of AGT versus five Singapore-listed hospitality real estate investment trusts (Reits): ARA US Hospitality Trust, Ascott Residence Trust, CDL Hospitality Trust, Far East Hospitality Trust and Frasers Hospitality Trust.

CIMB said it conducted the comparisons as AGT is a business trust that primarily invests in golf course properties and related businesses in Japan, which are part of the wider leisure and hospitality industry.

It added, however, that there were no entities it considered to be highly similar or directly comparable to AGT.

The valuation multiples it calculated include the enterprise value to earnings before interest, taxes, depreciation and amortisation (EV/Ebitda), the latest 12 months (LTM) distribution yield, and the price to net asset value (P/NAV). These multiples are based on transaction prices of non-controlling equity stakes in the companies and Reits, which would not have imputed any premium typically required to acquire control, CIMB said.

Based on the terms of the proposed divestment, CIMB calculated AGT's implied value as 64.77 billion yen and the implied value per unit as S$0.758.

CIMB said AGT's P/NAV is above the corresponding mean and median multiples of the Japanese companies, despite having a less favourable EV/Ebitda and LTM distribution yield.

AGT's P/NAV is also "significantly above" the corresponding range of multiples of the Reits, while its LTM distribution yield is within range of the Reits'.

In its letter, CIMB noted the "general decline" in AGT's operating profit, net profit and distributions for the period from FY16 to FY20 and in Q1 FY21.

"The outlook of AGT has been, and continues to be, negatively affected by the Covid-19 outbreak," the bank said. "It is difficult to predict how long such conditions will exist, and the extent to which AGT may be affected."

Units of AGT ended Friday at 73.5 Singapore cents, down 0.5 Singapore cent or 0.7 per cent.