Accordia Golf Trusts

[GreedandFear]

Golf players are declining in numbers in Japan.
I can't find much mention about this in English websites, but if you search google for the Japanese terms "ゴルフ離れ" (or "gorufu banare") you will find it mentioned in multiple Japanese sources.

Here is one of the few English website I found about this trend:
http://www.bloomberg.com/news/articles/2...ishing-rod

That is what I was expecting as well when I started looking at this company (although the company argues that as the population ages, there will be more retirees with time for golf....) but the numbers of annual players at Accordia show no signs of declining (see page 15 of the latest presentation). So is the declining # of golfers a myth or is Accordia doing a better job than the average operator ? I don't know....

[gzbkel]

From the following website, I gathered that the decrease in golfers is a long running trend that started since the early 90s. (Maybe coinciding with the property bubble crash)
https://www.bloomberg.co.jp/news/article...--iecwx9yo

Looking at the graph above, the YoY decrease has decelerated in the last few years, so it may not be very obvious if you compare data for just the recent years.
I am not familiar with Accordia myself, but if I look at slide 22, I see that the golf course revenue for FY16Q1 is slightly less than FY15Q1 even though there is more players. So perhaps Accordia is trying to increase attendance by providing discounts. I have seen articles about how golf courses are trying to attract new customers by providing free coupons to young people. (Not sure if AGT is doing the same)

My theory is that AGT chose to list in Singapore because their home country Japan has too much negative publicity about the decline in the golf industry, and they can get a better valuation in a new market where investors are more open minded and have less preconception about the state of the industry.

[tanjm]

From the following website, I gathered that the decrease in golfers is a long running trend that started since the early 90s. (Maybe coinciding with the property bubble crash)
https://www.bloomberg.co.jp/news/article...--iecwx9yo

Looking at the graph above, the YoY decrease has decelerated in the last few years, so it may not be very obvious if you compare data for just the recent years.
I am not familiar with Accordia myself, but if I look at slide 22, I see that the golf course revenue for FY16Q1 is slightly less than FY15Q1 even though there is more players. So perhaps Accordia is trying to increase attendance by providing discounts. I have seen articles about how golf courses are trying to attract new customers by providing free coupons to young people. (Not sure if AGT is doing the same)

My theory is that AGT chose to list in Singapore because their home country Japan has too much negative publicity about the decline in the golf industry, and they can get a better valuation in a new market where investors are more open minded and have less preconception about the state of the industry.

It's more complex than that. If you subscribe to the theory that the major consumers of golf are the recently retired (all other things held constant), then you need to look at the demographic age profile.

Japan reached the so-called "Demographic tipping point" last year or this year (population stops growing), but the age structure is as follows: http://www.indexmundi.com/japan/age_structure.html

As you can see, it should not be drastically tailing off yet. The big decrease starts around the current 30-34 age group, which should be retiring in 30-40 years time. Of course, by that time, Japan has much more to worry about than golf.

For those who like a 10% yield, you need 10 years for pay back. And 20 years to get a 8% IRR (obviously reduce the yield in your calculation if you want to be conservative). The question is what kind of a return you expect from an asset that is hopefully relatively less volatile. I haven't made up my mind how volatile its earnings are (in the next 20 years) yet myself.

[gzbkel]

Found an interesting survey (2014) about golfing interest in Japan, broken down by age.
See page 4 of http://www.recruit-lifestyle.co.jp/uploa...140204.pdf

If we disregard prior golfing experience, and just look at the interest in starting/continuing to play golf:
Age Percentage interested
20-24: 44.7%
25-29: 44.6%
30-39: 39.9%
40-49: 37.2%
50-59: 35.9%
60-69: 32.6%

So older people have relatively less interest in golfing.
Perhaps golfing is seen as a career enhancing activity, not so relevant to older people?
Or perhaps its due to limited finance among the non-working seniors.

Some stats about household liquid assets, by age, also 2014 data
Page 4 of http://www.stat.go.jp/data/zensho/2014/pdf/gaiyo4.pdf

Age Household liquid assets in millions of JPY
<30: 3.610
30-39: 6.000
40-49: 9.240
50-59: 15.960
60-69: 21.290
70+: 20.590

So a retiree household have about on average 21 mil JPY, or 275k SGD.

[gzbkel]

Found some very different figures from Japan Institute of Life Insurance. (2015)
http://www.jili.or.jp/lifeplan/houseecon...set/3.html

Age: Household liquid assets average/median (millions of JPY)
20-29: 1.89/0.68
30-39: 4.94/2.13
40-49: 5.94/2.00
50-59: 13.25/5.01
60-69: 16.64/7.7
70-79: 16.18/5.9

If this is accurate, the average Japanese household is more cash poor than I thought.

[tanjm]

Found some very different figures from Japan Institute of Life Insurance. (2015)
http://www.jili.or.jp/lifeplan/houseecon...set/3.html

Age: Household liquid assets average/median (millions of JPY)
20-29: 1.89/0.68
30-39: 4.94/2.13
40-49: 5.94/2.00
50-59: 13.25/5.01
60-69: 16.64/7.7
70-79: 16.18/5.9

If this is accurate, the average Japanese household is more cash poor than I thought.

Well, Japan has a national pension system.  And living in Japan is cheaper than you think - especially if you don't live in metropolitan Tokyo.

[tanjm]

Found an interesting survey (2014) about golfing interest in Japan, broken down by age.
See page 4 of http://www.recruit-lifestyle.co.jp/uploa...140204.pdf

If we disregard prior golfing experience, and just look at the interest in starting/continuing to play golf:
Age Percentage interested
20-24: 44.7%
25-29: 44.6%
30-39: 39.9%
40-49: 37.2%
50-59: 35.9%
60-69: 32.6%

So older people have relatively less interest in golfing.
Perhaps golfing is seen as a career enhancing activity, not so relevant to older people?
Or perhaps its due to limited finance among the non-working seniors.

That's not the way I read it. Even if you assume that's the age that you start playing golf, it may not be the age where you start playing lots of golf. Obviously, if you are still employed, you will play less golf. And given the average Japanese employee work rate, weekends are typically reserved for family (because they work so hard weekdays). 

I think better stats are needed.

Perhaps this might help: http://blog.japantimes.co.jp/yen-for-liv...ographics/

Some relevant text: (should read full text in link)
"The drop in price of golf memberships mirrors the drop in “participation,” according to Tokyo Shimbun. Over the last 15 years, the number of people nationwide who play golf at all has declined from 15.4 to 9.2 million, a decrease of 40 percent. On the other hand, the number of average days that a golfer plays a year has increased during the same period from 22.1 to 28.5. The reason for this seeming contradiction is the age of the average golfer, which has gone up.

During these 15 years, very few people under the age of 59 have taken up golf, while the people who have golfed on any kind of regular basis have been playing more, probably because they have more free time owing to retirement. The number of “light golfers,” meaning those who play less than 10 days a year, has decreased markedly. So even if the number of golfers has gone down, those who continue to golf play more often. If the golf industry isn’t happy with this development it’s because they know that this cross section of dedicated golfers will soon be too old to play at all. Thus the so-called 2015 Problem — 2015 being the year when boomers start turning 70 — is worrying the golf industry more than others."

I take it that there was over-building during the go-go years. If Golf courses go under, then their golfers may go elsewhere. So another thing to consider is if Accordia's Golf courses are more desirable or more profitable than others. If this is so, then paradoxically, golf memberships may actually rise for a while.

[tanjm]

I think my last para is the pitch that AGT are attempting to make, according to their annual report 2016. To quote:

"
while the overall Japan golf market is becoming more of a two-tier market, where there is a stronger demand in the urban areas and weaker demand in the rural areas. 70% of AGT’s golf courses are strategically located in the three largest metropolitan areas.
"

86% of their golf golf courses are within decent driving reach of Tokyo, Osaka and Nagoya.

I find their annual report to be quite a easy and informative read on the nature of the industry in Japan (of course caveat emptor here 8-)).

I have noted before that their margins are relatively thin - this is not a leasing type structure like a REIT. FY2016 revenue was 52.5 million yen vs PAT of 5.9 million. It only takes a dip of 5% in revenue (aka visits) to hit profits fairly badly. This probably accounts for their large yield.

[GreedandFear]

I have seen a number of references (in research and press coverage) to the fact that Japanese REITs trade at very low yields (don't have the data as of now but, from memory, say 5%) versus Accordia Golf Trust's 10% and that hence Accordia Golf Trust is undervalued. I believe that there are two reasons why Accordia Golf Trust cannot be compared to Japanese REITs :

(1) It is a business trust and not a REIT
(2) Japanese REIT yields have been driven artificially low as they can be purchased by the Bank of Japan which ran out of bonds to buy under its quantified easing programme and then got the mandate to purchase certain approved equities. As Accordia Golf Trust is listed in Singapore, it is not an eligible share.

Of course, MBK (the new owner of Accordia Golf Trust's parent company) could look into a dual listing in Tokyo or maybe a transfer of listing (which may or may not work given the Business Trust structure) in order to crystallise value but absent that, Japanese REITs are probably not the appropriate benchmark.

As MBK is a private equity firm and Accordia (the parent) still has a 28% stake in Accordia Golf Trust, one would hope that MBK would be incentivised to unlock some value. If a relisting (or dual listing) in Tokyo is not feasible, then, hopefully, we will finally see the long delayed debt funded injection of more golf courses which could increase the dividend yield significantly

I still think Accordia is an interesting high yielding asset...:-)

Vested.

[Squirrel]

Quick revisit to this counter, currently has a yield of about 9%. Trading under NAV and the company has stated that they do not hedge their JPY exposure. Accordia Golf Japan has been bought over by MBK partners recently.

In light of current market dynamics, this is an interesting counter to stay vested in primarily due to the following reasons

- Relatively high yield (Not expecting JPY borrowing rates to go up anytime soon)
- MBK partners might be a catalyst in the golf trust acquiring more courses from Accordia Golf Japan
- Natural hedge against a crash, JPY being a safe haven

Here is an extract from a news article of MBK's acquisition

"MBK said by taking Accordia private, it can focus resources on longer-term projects such as the acquisition of golf courses at home and overseas and attract tourists even when the overall golf playing population in Japan is shrinking. "

Interesting counter to look given current political/economic circumstances.