A 782.1 million unit initial public offering for Accordia Golf Trust was priced on Thursday at S$0.97, the bottom of its indicative range.
The S$759 million ($609 million) Citigroup and Daiwa led offering was re-structured to allow more paper to be placed into Japan via the Public Offer Without Listing (POWL). As a result, the Japanese retail tranche was boosted to 82% of the deal from 73.7% initially.
It is very unusual to see such a high proportion being allocated via a POWL and it left institutions with 14%, down from 21% originally. A total of 50 accounts participated, of which the majority were Japan-dedicated funds including a number of accounts, which also hold the Tokyo-listed parent, Accordia Golf.
The Singapore retail tranche accounted for the remaining 4%. Assuming the greenshoe is exercised, the company will list 25.1% of its enlarged share capital when it opens for trading on August 1.
Pricing at S$0.97 per unit equates to an estimated 2015 dividend yield of 9.1%, or 7% if non-recurrent income is stripped out. This is very high relative to J-Reits, which average about 4% on a 2015 basis, but in line with recent S-Reit listings such as Frasers Hospitality Trust, which also came at 7%.
Sources close to the deal say it was very clear from the beginning of pre-marketing that investors were looking for a dividend yield with a 7% handle on it.
Market momentum
For participating Japanese retail investors, the deal is likely to have appealed for two reasons. Firstly those who believe in Yen depreciation will be looking to book FX gains since the business trust reports in Singapore dollars.
Secondly, the Japanese equity market has been showing strong momentum over the past couple of months. And while the Nikkei 225 is still down 5% year-to-date, it has been on an upswing since mid May, rising 9.4% since then.
The J-Reit sector started to turn one month earlier, with the TSE Reit Index up 9.53% since mid April and 6% year-to-date. Some of the sector’s highest yielding Reits have also performed particularly well since then, with SIA Reit up 13.3% since mid-May to yield about 5.1% on a 2015 basis.
Accordia has hardly any comparables globally since there are few leisure-related Reits and no golf Reits. However, one Japanese benchmark investors did look at was Tokyo-listed Resorttrust, which runs timeshares and golf courses.
This is currently up 40% since mid-April to trade at 2.81 times price to book and on a 1.68% dividend yield.
Accordia has a net asset value per unit of S$0.32 based on an appraised value of S$1.85 billion ($1.5 billion), liabilities of $450 million and total units of 3.314 billion. This values the deal at 2.75 times net asset value, in line with Resorttrust but below global theme park operators such as Merlin Entertainments, which trades at 3.77 times book.
One reason why Accordia was able to achieve a relatively high book value, and yet also give investors a high dividend yield is because it chose Singapore as its listing venue. This was partly because it leases land in Japan and therefore was legally unable to structure a business trust there.
However, Accordia’s Singapore listing also gives it tax advantages, which it has been able to pass through to investors and bump up the distribution yield. By using an offshore Tokumei Kumiai structure, the group has been able to reduce its tax liability from 37.1% to a 20.4% withholding tax on distributions.
The trust’s cost of debt is also low at 1.75% plus Tibor, equating to about 2.5% all-in.
Singapore comparables
Local investors are likely to have looked on Accordia Trust less favourably relative to Singapore-listed benchmarks, because it does not offer much of a yield pick-up and is an unfamiliar asset class even though golf is one of the region's favourite pastimes. Two close comparables are Saizen Reit, which operates Japanese residential assets and Croesus Retail Trust, which manages Japanese retail assets.
The former is up 8% since its mid-March lows and has been fairly flat since Accordia formally launched on July 1. It is now yielding about 6.6% on a forward basis.
Croesus, on the other hand, has performed strongly and has risen 4.1% since July 1 and is up 13.7% since mid-March. It is now yielding around 8%.
Capital appreciation prospects
During its management roadshow, Accordia pushed three key selling points. Firstly, it presented itself as a play on Abenomics since golf has a high correlation to Japanese GDP.
It also pitched itself as a good proxy for Japan’s ageing population since elderly players play more often and spend more money. However, in an effort to maximize revenue, the group is also targeting female players (12.2% in 2013 up from 11.7% in 2011) and more foreign players.
For example, Japan will host the 2020 Olympics, which will include golf and the government has published a national tourism plan, hoping to increase foreign visitors from 10 million in 2013 to 30 million by 2030.
However, Accordia’s headline figures show that the management team will have to work hard to maintain the financials and sales are unlikely to be a driver of capital appreciation. Revenue has been on a declining trend since 2011 and is forecast to decline further still to Y53.5 billion ($530 million) in 2015 from Y55.9 billion ($550 million) in 2011.
As of 2013, sales were split 60% green fees, 24% food and beverage, 10% membership fees and 1% hotel revenue.
Net income, on the other hand, is forecast to rise to Y5.9 billion ($60 million) in 2015 from Y5.3 billion ($50 million) in 2011.
The trust presently manages 89 golf courses, of which 86.4% are in Japan’s three main metropolitan areas. It has a fairly visible pipeline of 26 courses to buy from its sponsor and management have said they hope to acquire about four to five courses per annum at a cost of about $20 million each.
At IPO, the trust’s gearing will stand at 30.2%, which means there is leeway to take on more debt. The trust is aiming for a run rate around the 40% level.
Accordia Trust has also said it hopes to continue being a consolidator in Japan’s fragmented golf sector. It currently has a 5.5% market share and has purchased 59 courses between 2006, when the parent first listed on the TSE, and 2013.
