The 2nd Quarter results are bad as expected due to the abnormal weather. The good news is that repayment of membership deposits for the quarter is only 258 million yen versus 1.1 billion yen last year. The Q1 deposit refund was even lower at 88 million yen. So maybe last year was really abnormal and we can expect the average deposit refunds to maintain around 250 million yen per quarter as per previous years.
The demand for golfing when the weather is good is still there as shown by the number of players in Oct 2018 which is up 15.7% yoy. I do not think such bad weather like last quarter's would reoccur anytime in the near future. I estimate the dividend payout to be between 5 to 6 cents per year from now. This would give a yield between 10 to 12% which gives me a lot of safety margin.
The bonus would be if the management finally start the acquisitions of more golf courses now that the loan renewal has been completed. Any acquisitions can be fully funded by debt as the Loan to Valuation is only about 30% currently.
I first invested in $Accordia Golf Tr(ADQU.SI) about 3 years ago when the price dropped a lot due to the fall in the Yen exchange rate. The price dropped further due to poor results from bad weather but then recovered when the performance stabilized. However I was very disappointed with the management as they have not done anything to improve the distribution since IPO in 2014. Each AGM they promised that they are looking into acquisitions of additional Golf courses from the sponsor but nothing has materialized. At the 2016 AGM, I requested the management to hedge the Yen/SGD exchange rate as the the Yen was strong then but they decided not to. This was in sharp contrast with the other Japanese REIT, Croesus which locked in good rates for up to 2 years. Till now, they do not do currency hedging, they have failed to understand the importance of a stable exchange rate. In Nov last year distributions were badly affected by a big increase in membership deposits refund. This was the straw that broke the camels back and I sold all my 80,000 shares at a small profit.
Since then the share price have dropped around 20%, I decided to look at AGT again to see if it's worth buying. The latest quarter ending Jun 2018 results are not bad with total distributable income down 7.2% YoY despite the heavy rains and flooding in Western Japan. I think that things will get much worse before getting better for the following reasons:
1. Abnormally hot weather with temperatures reaching 40 deg C. The July report is out with the number of players down 14.1% YoY. August continued to be hot with temperatures similar to Singapore.
2. The most powerful Typhoon in 25 years, Typhoon Jebi just hit the Osaka area today.
3. The 2% upfront refinancing fee: 1% was paid last quarter and another 1% which is equivalent to 452 million Yen to be paid in the next quarter.
4. The last and most serious: 10 billion Yen in refundable membership deposits which the lock up period is over. The deposits are refundable when the membership is terminated and normally they refund 200 to 300 million Yen each quarter. However for the quarter ending Sep 2017, they refunded more than 1 billion Yen in membership deposits which reduced the half year DPU by 33%. I think that they are expecting another big increase in membership deposits refund this quarter as they did not declare a DPU for the last quarter's results. Normally they would declare a DPU for the quarter which would only be paid out half yearly.
So AGT shareholders should be prepared for a possible big impact in the DPU for this quarter. This is just my opinion and it may not happen. Good luck if you are invested.