ACCORDIA GOLF TRUST: 10 Questions & Answers

Company Overview

Accordia Golf Trust is the first Business Trust listed on SGX comprising of 88 golf course assets in Japan (as at 30 June 2019). Its principal investing strategy is to invest in the business of owning a portfolio of stabilised, income-generating golf courses, driving ranges and golf course related assets. Approximately 70% of its portfolio are in the Greater Tokyo region, Greater Nagoya region, and Greater Osaka region.
Link to StockFacts company page.

Shinyo Country Club, Nagoya Region, of Accordia Golf Trust. Photo: Company
1. Describe Accordia Golf Trust’s revenue mix over the past few years.
• Our revenue is primarily from 3 sources: 1) Golf course play, 2) Restaurant, and 3) Membership.

• We have seen a pick-up in Golf Course and Restaurant revenues in FY18/19. Membership revenue, which accounts for 7% of the earnings structure, continued to shrink alongside aging population and paradigm shift towards casual play.

2. Briefly describe the outlook of the Japanese golf industry. How does Accordia intend to leverage on these trends?
• We remain optimistic in the Japanese golf industry. In the mid-to-long term, we believe that golf as a sport will gain more popularity as a result of the 2020 Tokyo Olympics and the success of Japanese professional golfers such as Hinako Shibuno winning the Women’s British Open.

• In the near term, we believe that demand for golf will continue to be supported by senior golfers as golf remains to be a popular leisure activity for seniors. Approximately 70% of our golf courses are located in the key areas in Japan for easier access for these senior golfers. 

3. Accordia Golf Co., Ltd (Sponsor of Accordia Golf Trust) is one of the largest golf course operators in Japan, what sets Accordia apart from other golf course operators?
• Accordia is a familiar brand among golfers, currently enjoying a strong presence in Japan. It is a pioneer in expanding casual golf in Japan, reshaping the industry and making it easily assessible to wider groups of golfers. Accordia has a dedicated revenue management team to achieve higher utilisation rates and takes advantage of efficient procurement structures to achieve cost savings.

• As a result, Accordia Group has a large player base of approximately 3.5 million loyalty card holders as at 31 March 2019, representing more than 50% of golfers in Japan. In addition, an average golf course in our portfolio welcomes approximately 54,000 golfers annually, 42% higher than the national average. As at 31 March 2019, Accordia Group has a market share of approximately 6%.


4. Number of golf course users and fees have been decreasing over the past decade, how does Accordia intend to continue growing with such market conditions?
• Our strategy remains the same, to provide excellent services to customers and make our golf courses attractive. We do recognise that the perception of golf as a time-consuming and a luxury sport might have contributed to the decline in the number of golfers over the years.

• We are taking proactive steps such as adopting new technologies to modernise our golf courses. We have installed GPS navigation systems on golf carts for golfers’ convenience and to make golf games more fun. At the same time, the GPS navigation system helps us track congestions in the golf course and guides golfers to speed up the play to reduce play time.

• We believe these continuous efforts will differentiate Accordia Group from our competitors, attract more golfers, and eventually result in higher revenue per player.

6. Majority of Accordia golf courses are located in key metropolitan regions such as Tokyo, Osaka and Nagoya. Why did Accordia choose to acquire golf courses in these locations and are there any plans to diversify to other regions?
• We believe golf courses in the key metropolitan regions have more stable cash flow than those in the rural areas. Population in the key regions has risen while that of rural areas has declined. Despite earthquakes, super typhoons and heat waves that struck Japan in the past years, golfers at our golf courses stayed above 5 million every year with utilisation rates at 93% and 69% for weekends and weekdays, respectively.

• It is a challenge for rural area golf courses to generate a stable cashflow due to smaller customer base and potential impact from bad weather conditions.

7. How does Accordia manage its debt ratios? With a Loan to Valuation (LTV) ratio of around 30%, what is Accordia’s plan when it comes to acquisitions?
• We adopt a prudent and disciplined approach towards capital management to ensure financial flexibility in our funding structure. We generally follow the structure of Singapore REITs whereby the leverage gearing limit is at 45%. (Note: Business Trusts are not subjected to a leverage limit)

• In the event where acquisition opportunities surface, we will consider full bank loan from existing lenders as a first option.

8. How would upcoming global events such as the Tokyo Olympics, contribute to Accordia’s business?
• Japan’s hosting of mega sports events such as the Rugby World Cup, PGA Tournament (ZOZO Championship) and the 2020 Tokyo Olympics will help promote the country as a tourist destination.

• The golf-related events will likely spur further interest among golfers, and prospective golfers to pick up golf clubs for the first time. While these serve as a short-term booster, it must be accompanied by the change in perception of golf as a time-consuming and luxury sport in order to have meaningful impact in the mid-to-long term.

9. Are all Accordia’s golf courses on freehold land? If not, what are some of the risks?
• 76% of our golf courses (by area) are on freehold land. The remaining 24% are leased from various individual owners for a lease term between 10 and 20 years. We believe that the probability of landowners not renewing the lease is very low as the golf courses are located at the mountainside, which they will not have much use for the land.

• Even without the registration of a land lease right, lease rights between the landowner and the lessee is still valid. The registration is required only to “perfect” the lessee’s lease rights against third parties. So far, the non-registration of leasehold interest has not had any impact on the operation of the golf courses. We provide a quarterly status update on the land and building issues.

• Only Nishikigahara golf course operates with a lease permit from the government. The lease permit will expire on 31 March 2020 and will likely be renewed on an annual basis, subject to the government’s approval. In June 2018, the government has issued a notice to inform that they will conduct surveys to construct a flood prevention project at the Nishikigahara golf course due to its location being along the riverbed of Arakawa River where flood risk is high. This project is still in the preliminary stage and we are in business as usual.

The government has also reassured that surveys will not have significant impact to our operations and necessary announcements will be made once the government releases more information.

10. What is Accordia’s value proposition to its shareholders and potential investors?
• We are of the view that fundamentals of the golf industry remain strong and we continue to see steady demand from senior golfers.

• We believe that Accordia Golf Trust appeals to investors seeking consistent distribution yields despite very different market and climate conditions, where players are shifting towards casual play and extreme weather that could potentially affect utilisation rate at our golf courses.

• Our 6.3% yield as at FY18/19 is comparable with the average yield of the Business Trusts in Singapore. We believe that ongoing efforts to improve revenue, boost utilisation rate on weekdays, attract women golfers into the game and cultivate juniors’ interest in golf will continue to make our business sustainable for shareholders.

 
This article was first published on SGX website