COMPANY UPDATE Accordia Golf Trust Singapore Monday, 24 October 2011 ( AGT SP; ACCO.SI ) Not rated Price as of 10 Apr 2015 0.770 12M target price (S$) - Previous target price (S$) - Upside, incl div (%) - Trading data Market Cap (S$m) 846.3 Issued Shares (m) Ave Daily Traded (3-Month) Vol / Val 52 week lo / hi Free Float 1,099.1 1.7m / $1.3m $0.73 / $0.93 71.1% Major Shareholders Accordia Golf Co Ltd 28.9% Goldman Sachs Group Inc 11.1% Morgan Stanley Daiwa Securities Group Inc 8.0% 7.2% Poised for a bounce back Recently listed on 1 Aug 2014, Accordia Golf Trust (AGT) has retreated 21% from its IPO price, which outweighed the 7.4% depreciation of the JPY against the SGD. Due to the large correction, we think that AGT is currently trading at an attractive yield of 8.7% ex-distribution. *We use an exchange rate of 88.4 SGDJPY for our calculations Attractive 8.7% recurring yield ex-distribution. Including one-off items, we look forward to the forecasted distribution accrued for the period Aug-14 to Mar-15, amounting to JPY5.49b (~5.65 S cents) that will be paid by June. Without the one-off items, AGT estimates a recurring distributable income of JPY6.06b (6.23 S cents) in FY15, or 8.7% yield ex-distribution. AGT had slightly weaker results in Aug-Dec 2014 due to the unusual bad weather. Moving forward, results may improve as utilization rates have been steadily improving. AGT encourages the growing senior population to play on weekdays (utilization on weekends may be full depending on the season). Also, AGT has been attracting female golfers to the male-dominated sport, and may roll out promotions to the younger crowd during summer when utilization is lower. 12-Mth AGT SP (Blue) vs. FSSTI 1.20 1.10 1.00 0.90 0.80 0.70 0.60 0.50 Mar-15 Jan-15 Feb-15 Dec-14 Oct-14 Nov-14 Sep-14 Jul-14 Aug-14 3,700 3,500 3,300 3,100 2,900 2,700 2,500 Source: Bloomberg Financials & Key Operating Statistics YE Mar (JPY bil) 2011 2012 2013 Revenue Operating Profit Total profit EBITDA Borrowings Total Assets BVPS (Scts) Gearing (%) Price / Book (x) 56.4 54.3 54.2 8.5 9.1 9.4 5.3 5.8 6.0 12.1 12.5 12.7 43.1 43.1 43.1 177.6 177.1 179.5 84.9 84.9 84.8 24.3 24.3 24.0 0.9 0.9 0.9 Source: Company Data, KGI Fraser Hong Wei WONG [email protected] +65 6236 2850 Aug-Dec CY2014 23.6 5.2 3.6 6.8 43.2 183.1 86.7 23.6 0.9 Upside catalysts with huge acquisition pipeline and Olympics. AGT targets to acquire JPY50b of assets by Mar-2017, adding on to the existing portfolio of JPY160b. We believe that such acquisitions will be highly accretive at 5% net yield (pre-tax) as AGT is looking to acquire at 8.3% net operating income yield (in-line with its current portfolio) while management intends to fund acquisitions by taking debt, which we think may cost 3%-3.3%. Other upside catalysts include the addition of golf into the Olympic Games 2016 and the Olympics Games 2020 that will be held in Tokyo. Sheltered from several macro risks. ~77% of debt are hedged till at least 2017, and we believe borrowing costs may remain low in Japan for a long time given the ultra loose monetary policy. Consumption tax hike has not impacted sales, and AGT could fully pass through the tax to customers. Priced at attractive 8.7% yield ex-distribution compared to REITs. Due to a lack of listed golf comparables, we examine the differences with SREITs. Aside from differences in the REIT and the business trust structure, AGT’s golf assets may not be as easily transacted and liquid as properties that are owned by REITs. However, 80% of AGT’s golf courses are on freehold land instead of leasehold seen in most REITs. As opposed to REITs with rental escalations clauses, we think that AGT could increase its revenue through higher utilization and materializing the huge acquisition potential. If investors could hedge the currency risk, AGT offers 290bp pickup compared to the average SREIT which typically yield ~5.8%, which is extremely attractive and more than compensates for the differences, in our view. Please see important disclosures at the end of this publication Singapore Accordia Golf Trust A few angles we pondered Who has been selling down AGT? From the original 58.8% allocation at IPO, Japan retail investors have been selling AGT shares and we estimate that this group of investors currently still own 35% of the total shares. Other than flipping allocated shares post-IPO, AGT management thinks that AGT shares could have been sold in order to recognise losses to minimize tax liabilities, as the Nikkei 225 has run up and Japanese investors are liable for capital gains taxes. On the buying side, we note that recently Goldman Sachs has increased its stake to more than 7% direct interest (with 11% indirect interest) while Morgan Stanley also boosted its indirect stake to more than 8%. Stabilising yen. Since the BoJ undertook a more accommodative monetary stance in Oct 2014, JPY depreciated ~10% against the SGD but subsequently stabilized to recover some grounds. Figure 1: SGDJPY since IPO 94 92 90 88 86 84 82 80 78 76 1/8/2014 1/9/2014 1/10/2014 1/11/2014 1/12/2014 1/1/2015 1/2/2015 1/3/2015 1/4/2015 Source: Bloomberg Captive audience to F&B. AGT offers F&B at its premises, which constitutes 23.6% of total revenue. During our site visit, we realized that golfers are largely captives of Accordia’s restaurants due to a lack of nearby alternatives, and also because of the hassle to travel far out and back to be in time for the next game. Possibility to attract foreign players. Currently, Accordia does not attract many foreign golfers, and we note that non-Japanese languages (e.g. English, Chinese) are infrequently used on signboards and maps. Japanese golfers may frown on foreign golfers, as a site general manager shared an example of Japanese golfers objecting to American golfers who spot tattoos. Nevertheless, these issues could be resolved (in the example, the site general manager requested the American golfer to wear full-body clothing to cover up the tattoo). In the medium to long term, golf in Japan could boom with the government targeting to attract 20m visitors in 2020. Background on pipeline from sponsor. In the acquisition pipeline, the sponsor, Accordia, has 26 golf courses under the Accordia brand and under the nonAccordia brand there are 17 golf courses and 22 driving ranges. Accordia is the largest golf operator in Japan, and AGT is likely to benefit as the sponsor aims to sell at least JPY40b in assets to stay asset-light. April 13, 2015 2 $ 222 Singapore Accordia Golf Trust Figure 2: Location of AGT’s golf courses Source: Company Unbeatable yield compared to peers. AGT offers the highest yield amongst the Japanese yield stocks listed on the SGX. In spite of a lower 10Y government rate in Japan than Singapore, the SGX-listed Japanese yield stocks trade at far higher yields than SREITs. We note that J-REITs listed in Japan trade at 3-4% yield. As such, there may be significant upside potential if the market begins to appreciate and rerate the SGX-listed Japanese yield stocks. Figure 3: Yield-comparison 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Accordia Golf Trust Croesus Retail Trust Saizen REIT SREITs SG 10Y rate Jap 10Y rate Source: Bloomberg April 13, 2015 3 $ 333 Accordia Golf Trust KGI’s Ratings Disclaimer Singapore Rating Definition KGI Fraser Research’s recommendations are based on a Absolute Return rating system. BUY >10% total return over the next 12 months HOLD -10% to +10% total return over the next 12 months SELL <-10% total return over the next 12 months This report is provided for information only and is not an offer or a solicitation to deal in securities or to enter into any legal relations, nor an advice or a recommendation with respect to such securities. This report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation and the particular needs of any recipient hereof. 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