Boutique fund seeks answers from Accordia Golf Trust over move to retain profits

Singapore

THE decision by Accordia Golf Trust (AGT) to set aside 1.56 billion yen (S$20 million) as reserves in the March quarter has reduced AGT's latest semi-annual payout by almost half, and warrants a more detailed explanation, the largest minority unit-holder of Accordia Golf Trust (AGT) has argued in an open letter.

Hibiki Path Advisors, which owns 7.2 per cent of AGT, further observed that AGT's tendency to make announcements lacking in important details seems to have begun last May. That's six months before the trust sponsor announced a non-binding offer to acquire AGT's entire golf course portfolio.

AGT's financial advisers are evaluating the offer but have not completed their work yet due to Covid-19 delays, AGT said last Thursday.

Last Thursday, AGT reported a distribution per unit (DPU) of 1.69 Singapore cents per unit for the second half ended March 31, down 20.7 per cent from a DPU of 2.13 Singapore cents in the same period a year earlier.

According to Hibiki's calculations, AGT's DPU could have been 1.79 Singapore cents higher, if it had not retained 1.2 billion yen of income as a "special reserve for operations", and reserved another 362 million yen as payment to professional parties for evaluating the non-binding offer.

AGT said that the 1.2 billion yen reserve was made "to bolster the group's cash balance to meet the financial covenants as required by financial institutions, based on the projected business impact of the Covid-19 outbreak in FY20/21."

Yuya Shimizu, chief investment officer of Hibiki Path Advisors, wrote in an open letter to the board of Accordia Golf Trust Management: "We find that it is unacceptable when a substantial amount of 1.2 billion yen was placed as reserve and we were only given a very general statement in slide 21 which does not provide sufficient details on how the amount was decided upon.

"We have asked this question directly to your executive but there was no reasonable explanation about the relevance of 1.2 billion yen, which equates to 1.38 Singapore cents per unit... We do not see the need to have this reserve in place."

Mr Shimizu noted that AGT is required by lenders to maintain three billion yen in current deposits, and had 8.9 billion yen in cash and bank balances as at March 31.

He also estimates that AGT had a positive cashflow of 35 million yen in April, when the Covid-19 situation in Japan was at its worst.

Based on information provided by AGT, the trust made a loss of 383 million yen in April. This could include non-cash depreciation costs of around 418 million yen, Mr Shimizu estimates. Japan declared a state of emergency on April 7 in response to the pandemic.

He added: "If for some reason, depreciation cost was not included in the (operating) expense in page 20 (of the results slides), the projected monthly cashflow is negative 383 million yen but this still casts no significant risks to the cash balance and to the loan covenants."

AGT has a 1.5 billion yen facility of which only 400 million yen had been drawn as at March 31. This can be used to help it meet capex requirements, Mr Shimizu wrote.

As for the 362 million yen reserved for professional fees, Mr Shimizu noted that Daiwa Capital Markets Singapore and Ernst & Young Corporate Finance had been appointed as advisers in Dec 20 last year.

Mr Shimizu wrote: "The work has been in place for more than five months and there has not been any material progress or update to date. As such, we believe that we, as well as other unitholders, should be entitled to disclosure of why such large fees has been carved out for FY19/20, as opposed to FY20/21."

The total fee estimate should also be made public, he said.

AGT shares fell 4.84 per cent last Friday after the results were announced. The shares fell another 2.54 per cent or 1.5 Singapore cent to S$0.575 on Monday.

In response to queries from The Business Times, AGT executive director Toyo Nakanishi said: "Following the results announcement on June 11, we have been meeting with analysts and investors of AGT, and have obtained feedback from them, including the comments in the letter (from Hibiki). We are considering the letter and will address the comments in due course."

Hibiki Path Advisors is based in Singapore, with S$460 million in assets under management. The fund focuses on Japan and Japan-related assets, and is also an investor in Singapore-listed Uni-Asia Group, a hotel and ship leasing company led by a Japanese management team.

Between June 17, 2019 and January 30 this year, Hibiki hiked its stake in AGT from 6.2 per cent to 7.2 per cent, at an average price of S$0.632 per share.