As we all know, STI has been moving up steadily this year, driven by bank and property counters. Year to date, it’s one of the best performing index in the world. Hence to search for good yield, I have expanded my radar to look beyond just blue chips and the common REITs. Recently, Accordia Golf Trust’s attractive yield caught my attention when it reported its earnings. It is operated in Japan and I don’t have much knowledge on golf business and it’s future prospect. So I did some read up and in this article, I will be focusing more on the outlook on the golf sector in Japan rather than the numbers.
started. In August 2014, Accordia Golf, which owns 133 golf courses, decides to
be asset light and focus more on golf course management. Accordia Golf Asset
LLC was then set up and Accordia Golf transferred 89 golf courses to Accordia
Golf Asset LLC (fully owned by Accordia Golf then). Next, it transferred
this silent partnership stake in Accordia Golf Asset LLC to Accordia Golf Trust
for approx 113bn Yen. This purchase was financed through IPO by listing in SGX, JPY 25.4bn from Accordia Golf (28.85% stake in AGT), and JPY 45.0bn loans.
Manager of AGT, which manages the business trusts and safeguard interests of
investors, jointly owned by Daiwa Real Estate Asset Management Co. Ltd and
Accordia Golf Co Ltd. Currently AGT is granted the first right of refusal over the
sponsor’s golf courses and driving ranges and Daiwa Real Estate Asset
Management Co Ltd provides asset management advice to AGT i.e.
acquisition/disposal of golf course.
summarize the whole picture.
In simple words, Accordia Golf spinned off 89 of its golf course asset by listing AGT to focus on providing golf management services . With Accordia Golf Trust having call options over Accordia’s Golf course and first right of refusal over the courses that Accordia buys or sells, it will be able to acquire golf courses to grow its revenue.
The chart above shows the rise in population
aging with a steady increase in population aged 60s and projected to rise till
2040. On the inverse, there is a fall in population below age 20-59 due to
falling birth rates.
chart below shows a rising trend of percentage of golfers above 50 & 60,
which occupies about more than 50% in 2011. A possible reason may be that golfers at those age group are retired and have more free time to play. With
medical advancement moving forward, life expectancy in Japan is also set to
increase albeit a gradual one.
Entry/ Competitive Advantage
remains high and a typical golf course requires 50-80 hectars, costing about
JPY5 billion to JPY6 billion in construction costs (excluding acquisition price). According to IPO prospectus, there has been no development of new golf
courses partially due to lack of develop-able land, which shows that
competition is limited and is likely that Accordia is able to maintain its market share in Japan.
competition makes it harder for new entrants, you have to look back into the
development of the golf industry since the 1900s.
million golfers and about 500 golf courses in the country. Back then membership
are obtained via shareholder memberships.
very popular sport to entertain clients by mixing business and pleasure. This was when a deposit system was introduced which was to
be paid by a new member and could be fully refunded with no interest should one
terminates the membership.
membership were easily sold with an increased demand. Golf companies
then used the cash for golf development purposes as well as investment products.
With the surge in players, they had never expected that one would consider to
terminate their membership.
where a membership costs up to a few millions
golfers shrank. That was when many golf companies faced pressures from members
to request for refund. Many finally troubled firms couldn’t pay off went into
bankruptcy and some were bought over by Accordia Golf and Pacific Golf
Today, it becomes the situation where large size golf companies like Accordia are expanding their market share through acquisitions which smaller companies finds it hard to compete as they are lacking in economies of scale. The smaller golf courses located in more outskirts of city are poorly managed and had to resort into alternative ways to dispose/convert their assets As reported in the IPO prospectus, 37 golf courses have plans to turn their land into solar power plants and the chart below shows the reduction in golf courses after peaking in 2002.
courses in Japan, followed by PGM group. As mentioned, both have acquired much
golf courses since 2000, and specialize in golf courses and driving range
management compared to other companies, who are conglomerates and dealing
with financials, real estate, etc. For instance, OrixGroup, third in line is a
financial services group which owns baseball teams.
A possible catalyst to reignite the popularity of golf would be it’s inclusion in 2020 Olympics in Toyko, starting from Rio in 2016. However to stimulate interest in golf and tourism much also depends on the government continuing initiatives and it’s abit hard to forecast the numbers at this point. A question to ask is that would one start playing golf after realizing that his country is hosting Olympics in 2020 with golf being introduced as an Olympic sport? It may create some awareness but I doubt that it would arouse much interest among the younger generation.
I used to think that Olympic Games will boost the the host country’s economy via tourism growth, and was quite bullish on emerging markets like Brazil, as they hosted the World Cup and then Olympic Games 2 years later. However, the analysis report suggest otherwise.
Based on the analysis conducted by McKinsey, host countries for Olympic games sees mixed momentum in tourism growth. Hence, I wouldn’t be too optimistic that Tokyo 2020 would bring much golf tourism to Japan.
it’s profit and distribution:
Internal Growth – growing number of visitors
rewards programme (Jan to Jun 2015) to encourage more players during weekdays. They also implemented the loyalty card programme and as of
March 2016, there are 4.14mil loyalty card holders, which represents 57.5% golf
holders in Japan. Since its launch, there is a steady increase in the
membership. So today, one can imagine that more than half of the golf players
in Japan actually owns a Accordia Golf loyalty card. Having a loyalty card
helps to retain and capture new market share.
economic bubble due to decline in golf visitors, internal expansion will be
limited in the short to medium term. The
below article shows that Japan’s golf courses are closing at a rate of one a
week, due to declining interest among the young and the older generations.
of having sponsor is having first right to refusal in purchase of assets. Currently
Accordia Golf has 25 golf courses, and Accordia Golf Trust has call option over
17 of them. As the LTV stands at a conservative 28.8%, there is ample room to
fund acquisition via debt.
administration centre, promoting self-service or installation of automated
payment machines. This means cutting down expenses to improve profit margin and cashflow for distributions. However, it’s hard to read from the report if this actually pays off or whether it’s effective.
Will I buy?
I have given some thought and won’t be purchasing this counter because the earnings are very unpredictable especially with seasonality risks and complicated operating structure. Moreover Japan’s golf population has been declining which seems like a sunset industry. This stock indeed has competitive advantage compared to other golf courses and it has high yield among Reits in Singapore but in this case I am willing to forgo the high yield for something safer. What are your thoughts and would you invest in Accordia?