Accordia Golf Trusts

[weijian]

hi Mushy,
There are probably some silent AGT owners around here
I am not a AGT owner but probably try to see if i can answer some of the more generic questions about AGT here:

- Based on the announcements to date, i drew out the relationships of the various actors on a piece of paper. After looking at it, my conclusion is that while there is a perception of "conflict of interest' but i would really think that appointing DCM as a financial advisor, is still observing both the spirit and letter of the CG code. Of course, Prof Mak probably disagrees with me but i thought as long as the buyer (Accordia) and seller (all unitholders including Daiwa with a 5% stake) are different (not acting in concerted) and the advisory fees are "at arms' length", it would probably be closer to what you and corydorus alluded earlier.

- From what i read from the 24th Dec announcement (link you provided), Accordia intends to buy all the assets of AGT. So your question of "if the sale of assets involve >20% of the NAV, it requires shareholders to vote. I assume it is the same for business trust" is probably not valid as there will not be an EGM to vote on disposing assets per say.

- Since it is going to be for ALL the assets, this means that Accordia intends to delist AGT. As for who can vote or not, it really depends on how the buyer decides to execute the scheme - Voluntary Offer, Voluntary Delisting (governed by Listing Rules) and Scheme of Arrangement (governed by Companies Act). Voluntary Offer is based on unit holders submitting/selling their shares to the buyer (ie. unit holders "vote" via selling/tendering their shares, not casting real votes in a meeting). For Voluntary Delisting and Scheme of Arrangement, there will be real voting in a meeting. SGX regCO has changed the rules recently and parties acting in concert with the buyer, now cannot vote in a Voluntary Delisting. For Scheme of Arrangement, they can still do so (but there is a catch as minorities can win based on numbers, not shares). We should probably see how the buyer intends to execute the scheme..

- From what i read so far, Daiwa (5%) is probably not acting in concerted with the buyer (Accordia), even though they have a relationship via a JV that is a trustee manager for AGT. So from what i understand from the Takeover rules/code, they should be able to exercise a decision, in time to come.

[ghchua]

Hi weijian,

If Accordia intends to acquire all the assets in AGT, there will be an EGM for unitholders to vote as it is a major transaction (and interested party transaction too). I agree with you that Daiwa is not an interested party in this transaction though, so they will be allowed to vote at the EGM. However, disposal of assets in a trust is only an ordinary resolution at the EGM so it just needs a simple 50%+1 majority independent unit holders vote to go through. As for the other corporate actions that you have stated above - including Voluntary Offer, Voluntary Delisting, Scheme of Arrangement etc, it is irrelevant in this discussion as Accordia is not using any of these methods to acquire AGT's assets.

Please refer to the recent Religare Health Trust case study on the disposal of their assets in the business trust if you are unsure. This AGT disposal is similar in terms of the way they are executing the deal.

If the EGM is approved, transaction executed and cash received, AGT will become a cash trust, with the majority of its assets in cash. Whether the trust will be paying out the cash from the trust will depend on what they are going to do with it. They may pay out most of the cash, some of the cash or even none of it. Also, you will be asking whether they will delist, do RTO with the shell etc. Again, I will not speculate here as I am jumping way ahead of the issue in hand here, which is merely the disposal.

[weijian]

hi ghchua,
Thanks for correcting my mistake. I messed up between a company takeover and asset buyover - thinking it was more of the former than latter.

I took a look at RHT as you recommended. Reminds me also of the more representative (in the case, both Japanese) Saizen Reit I suppose. Personally, I had similar experience in MIIF sale and liquidation, that was some time ago but not a good excuse to mix mess up between the different schemes.

My mess up actually brings in another question - Some time ago, VB.com did discuss between the various pros/cons of a voluntary delisting/general offer/SOA ("takeovers") The question i have is, how would buyers then decide between using a "takeover" VS a "buyover" (buying of assets that only require a simple 50.1% hurdle)?

For sure, I have read CRT used a SOA scheme to get delisted (rather than sale of assets) a couple of years back. So there is more to it than simply a REIT/Trust thing.
https://www.straitstimes.com/business/co...yout-offer

I would have imagined the kind of assets and structure/human resources of the holding company have a say in whether it would do a "takeover" or "buyover".

[ghchua]

My mess up actually brings in another question - Some time ago, VB.com did discuss between the various pros/cons of a voluntary delisting/general offer/SOA ("takeovers") The question i have is, how would buyers then decide between using a "takeover" VS a "buyover" (buying of assets that only require a simple 50.1% hurdle)?

I am not sure about that. It depends on the intention of the buyer. In this case, obviously Accordia wanted the trust to remain listed and still exist after the buyout. Also, they wanted to own 100% of all those golf courses. Therefore, they came out with this asset buyout. If they had used other corporate actions, there is a chance that they might not own 100% after that and the trust might be delisted. Using SOA will also meant that they have to delist the trust once the scheme is effective.

After the buyout of its assets, Accordia might have some intention with regards to AGT which I do not know presently. They might inject new assets into it, do a RTO etc. Therefore, I guess we will only have an idea after we reached that stage.

[mobo]

The great danger to existing shareholders is as a business trust, AGT does not have a very transparent distribution calculation methodology as opposed to a REIT.
 
For example, if you look at the distribution levels of AGT, it fluctuates wildly and most of the volatility is driven by a very vaguely defined item called “Reserve Items”. This is basically the amount of cashflow that the trust managers get to either retain or release from accounts for distribution to unitholders at their discretion.
 
Seeing that Accordia is both the acquirer and manager of AGT, there is a possibility it can ‘sweeten’ the deal and make it more palatable by deliberately suppressing distributions. This will have the effect of suppressing unit price and concomitantly affect traditional valuation measures that have to do with yield, unit price performance and NAV discounts. We do not know whether Accordia  will do such a thing, but unitholders need to be aware that this very powerful arsenal is in the hands of the acquirer and factor in this risk in their investment decision.

[ghchua]

Hi mobo,

I don't know about you, but it will be very risky to rely on business trusts solely for stable and consistent distributions. I am sure you remembered what happened to Asian Pay Television Trust (aka APTT)? Though operationally, they are stable (in a sense that numbers are down, but not down a lot), they announced a big cut in distributions and you know what happened to the unit price after that.

So, REITs and business trusts are different. They are have a different risk profile. There is a reason why CPF Board does not allow CPF funds to be invested in business trusts to date but CPF funds could be invested in REITs. I am not saying all business trusts are risky, but do beware of the flexibility that they have in declaring distributions and the risk associated with those assets.

[Mushy]

I wonder how confident Accordia is? Is it already a done deal, something the public does not yet know. Or is the deal still very much in the molding process?
Will they turn around suddenly and propose to inject all the remaining golf course into the trust incl the orix ones... With all the recently announced restructuring and actions, surely the mother (MBK) has great intentions, for itself.

At this juncture, the only publicly announced info is a vague indicative price and their intention to acquire all the golf course assets. I don’t think they care if the trust remains listed after that. It is like they just want their golf courses back and whatever is left of the trust is simply scrap metal. Accordia folks are not in the business of corporate deals outside of golf courses. But their parent MBK is…
Whatever the final proposal is, it is likely to involve a substantial divestment of the trust assets and should involve an EGM for unitholders to vote. And a minimal required 50% pass.

Simple exercise to have a feel if deal can pass if it comes to a vote.
Using numbers from AR 2019 (as of 17 June 2019):
Accordia sponsor: 28.85%
Public float: 58.95%
Institutions (excl accordia): 12.2% (100% - accordia and public float. Seems to be mainly Daiwa and Hibiki path).
Total: 100%

Assume only Accordia (28.85%) cannot vote and all the rest can vote (incl daiwa), 35.6% of the total units is required to vote No for no deal.
Assume somehow the institutions were swayed to vote yes to the deal, then it boils down to the retail investors vote to decide the outcome. This means for no deal, at least 60.4% of the retail investors group must vote No. That means around 391 million of the total 1.1 billion units of the trust.
(Edit, add: Above numbers assumed everyone turn up to vote)

There are around 3500 retail investors. Everyone has different backgrounds, objectives and offer price that they are willing to let go.
There are the IPO investors (S$0.97), bottom fishers (S$0.49) and somewhere in between.
There had been a total distribution of S$0.23 since IPO.

Looking at the past 5 years since IPO, both unit price and distributions has definitely been volatile. It averages a payout of around 4 to 5 cents per year. And currently it seems to be on an up cycle as reflected in the recent half year performance.
How the offer will be made will also affect unitholders vote. I.e. direct pay out of $xx/unit after the divestment or remain invest in a cash trust with uncertainties. I think typical unitholders of business trusts are less risk-taking.
A large portion of the 3500 retail investors are Japanese (info from an ex agt director during past agm) and we may not just assume everybody has the same info or outlook.
(Edit, add: Egm likely will be held in sg just like agm. This might have an impact on japanese investors voting)

[mobo]

Hi mobo,

I don't know about you, but it will be very risky to rely on business trusts solely for stable and consistent distributions. I am sure you remembered what happened to Asian Pay Television Trust (aka APTT)? Though operationally, they are stable (in a sense that numbers are down, but not down a lot), they announced a big cut in distributions and you know what happened to the unit price after that.

So, REITs and business trusts are different. They are have a different risk profile. There is a reason why CPF Board does not allow CPF funds to be invested in business trusts to date but CPF funds could be invested in REITs. I am not saying all business trusts are risky, but do beware of the flexibility that they have in declaring distributions and the risk associated with those assets.

Hi ghchua

Thanks for your reply. I am well aware of the difference between business trust and REITs. 

The cuts at APTT and some of the other trusts like FSL, HPHT, Rickmers etc. was something that was bound to happen sooner or later as it was very clear that neither profits nor cashflows supported the high distributions.

What I am trying to put across here is that AGT is a different animal, it's profit levels and cashflow generation are more than enough to cover the previous distributions, so conceptually none of the red flags we see in other business trusts is going to appear in AGT. However, due to the opaqueness of a "Reserved Items" line which seems to be driving DPU volatility, this allows Accordia to artificially suppress DPU if they so choose to do so to facilitate the offer.

This is a risk that investors need to take into account when they are deciding on their positions.

[Mushy]

From Marissa Lee twitter.
"As part of the offer, Accordia Golf also intends to assume the holding company's debt, including the 26.2 billion yen of deferred tax liabilities that it has on its balance sheet, AGT told the businesstimes" Edited: added the last sentence.

While I believe most can assume this part, AGT should have made this clarification publicly.
Or did Miss Lee assumed herself. And of course, AGT is not a reit.

[ghchua]

From Marissa Lee twitter.
"As part of the offer, Accordia Golf also intends to assume the holding company's debt, including the 26.2 billion yen of deferred tax liabilities that it has on its balance sheet."

While I believe most can assume this part, AGT should have made this clarification publicly.
Or did Miss Lee assumed herself. And of course, AGT is not a reit.

The announcement only said it intends to assume the debt of the holding company that holds all the golf courses. There are debt and other liabilities in the balance sheet (including lease liabilities, deferred tax liabilities, membership deposits etc). 

So, it is subject to interpretation. I believed that Ms Lee is making the assumption that deferred tax liabilities is included in the amount. If you do not agree, just take that amount off in your computation.