Date: September 9, 2020
To the Board and Directors of Accordia Golf Trust Management Pte. Ltd.
Through Mr. Khoo Kee Cheok, Chairman and Independent Director
Questions on Accordia Golf Trust Management Pte. Ltd.’s Annual Report
Dear Mr. Khoo Kee Cheok,
Q1. As noted in the letter to unitholders, the trust successfully divested Village Higashi Karuizawa Golf Course at the start of the year at a gain of more than four times its appraised value as at 31 December 2018.
In addition, the trust received a non-binding proposal received from Accordia Golf Co. for the divestment of all of the interest in its golf courses in late November 2019. The purchaser is the sponsor and the controlling unitholder of the trust, as well as a controlling shareholder of the trustee-manager.
Based on the circular dated 21 August 2020, the valuation of the golf courses as at 31 May 2020 is JPY5,442 million (approximately S$70.8 million) lower than the appraised value of the golf courses as at 31 December 2019 of JPY141,806 million (approximately S$1,845.1 million) which was obtained prior to the widespread outbreak of COVID-19.
Based on the valuation report on the TK Interests Valuation dated 21 August 2020, the valuation of the Trustee-Manager’s TK Interests as at 31 May 2020 is between JPY52,052 million (approximately S$677.3 million) and JPY59,497 million (approximately S$774.2 million).
- Given that the valuations of the golf courses and the TK interests have been negatively impacted by the pandemic, has the independent committee considered if it would be beneficial to unitholders to delay the transaction or to include an earn-out based on future profits so that unitholders do not get shortchanged by entering into a disposal of the prime assets when the market sentiments are weak?
- In addition, given that the trust divested Village Higashi Karuizawa Golf Course at a gain of more than four times its appraised value as at 31 December 2018, has the independent committee reviewed the reliability of the valuation reports? What is the assurance that the valuations of the golf courses are not materially understated (as was in the case of Village Higashi Karuizawa Golf Course)?
- Has the independent committee considered the option of optimising its portfolio by disposing underperforming golf courses and keeping its core assets versus an outright sale of the entire portfolio?The valuation reports are based on the key assumptions that were used in the cash flow projections provided by the trustee-manager to the valuers. The key assumptions included:
- total visitors for the golf courses to grow at a compound annual growth rate of 0.6% per annum
- projected average golf course utilisation rate of 78.8%
- lower projected revenue for the Nishikigahara golf course as a result of reduction in number of holes to support flood prevention efforts by the local government (although management has stated that they are hopeful that the project may be further delayed due to the pandemic)
- What was the role of the independent committee in determining the key assumptions used in the valuation?
- What were the other key assumptions used in the cash flow projections that would affect the valuation, for example, the projection for revenue per player?
- Can the independent committee show the sensitivity analysis of the key assumptions to help unitholders understand the impact on the valuation?
- What is the basis for using a weighted average cost of capital of 5.9%?
As disclosed, the Independent Committee and the Joint Financial Advisers conducted a wide market testing process that resulted in only one confidential non-binding indicative proposal from another third-party bidder that was received in February 2020.As recently as October 2019, the trust was profiled by SGX in its “10 Questions in 10 Minutes”. Accordia Golf and Accordia Golf Trust (combined) operate 134 golf courses, or about 6% of the market, marginally trailing the market leader (PGM Group) which has 138 golf courses, although the owner of Accordia Group had acquired ORIX Golf Management Corporation in March 2019 which has since been renamed “Next Golf Management”.
- Can the independent committee help unitholders understand the “wide market testing process” that was carried out by the Joint Financial Advisors?
- Specifically, did the independent committee approach PGM Group given the strategic value of the trust’s 88 golf courses?
Q2. On 28 July 2020, the trust announced that it had received a letter from Hibiki Path Advisors Pte. Ltd. and certain unitholders to convene an extraordinary general meeting pursuant to Section 54 of the Business Trusts Act to consider several resolutions, which included:
- That since Daiwa Securities Group (“DSG”) is a Unitholder and a vested interest party to the Proposed Divestment, DSG will exclude itself from voting in the EGM and abstain from voting
- That the Trustee-Manager should disclose to the Unitholders the fee tables to Daiwa Real Estate Asset Management Co. Ltd. and Accordia Golf annually since inception
As set out in Paragraph 4.2 in the circular to unitholders, there are ongoing relationships between the trust/the trustee-manager and Daiwa Group since the IPO. Daiwa PI Partners Co. Ltd., a subsidiary of Daiwa Group, holds 5.36% of the total outstanding units in issue.
As disclosed, the trustee-manager is of the view that Daiwa PI should be able to vote on the proposed divestment. The reasons can be found on pages 47-48 of the EGM circular dated 21 August 2020.
- Can the independent committee help unitholders understand if it is appropriate for the trustee-manager (and not the independent committee) to justify that Daiwa PI should be able to vote given that the trustee-manager is 51%-owned by Daiwa Real Estate Asset Management Co., Ltd. (DREAM), a wholly-owned subsidiary of Daiwa Group?Further, as disclosed in the trust’s prospectus dated 21 July 2014, the asset manager, namely DREAM (the real estate asset management arm of Daiwa Securities Group), has been the asset manager of the trust, receiving a base fee being 0.066% per annum of the appraisal value of all the golf courses, golf driving ranges and other assets. This has not been highlighted by the trustee-manager nor the independent committee in the deliberation on allowing Daiwa PI to vote on the proposed resolutions.
- Can the independent committee clarify if it had considered how the asset management agreement between DREAM and the TK Operator may put, or perceived to put, Daiwa PI in a position of conflict?
- Given the numerous relationships Daiwa Group has with the trust, the trustee-manager and the offeror, would the independent committee re-consider if the Daiwa Group should abstain so that proposed disposal will depend on how independent minority unitholders vote?
Q3. Should unitholders approve the proposed disposal of the golf courses, the trustee-manager will distribute:
- the First Tranche Special Distribution of at least JPY59,984 million (approximately S$780.5 million), representing 92% of the Purchase Consideration, within 25 business days of the Assignment Date; and
- subject to there being no claims by Accordia Golf by the Claim Expiry Date, the Second Tranche Special Distribution of at least JPY3,260 million (approximately S$42.4 million), representing 5% of the Purchase Consideration, within 25 business days after the Claim Expiry Date.
The claim expiry date is (i) the date falling three months after the Assignment Date or (ii) the date of Accordia Golf’s written notice to the Trustee-Manager confirming that it has no claims against the Trustee-Manager and has no intention of filing any claims in the future, whichever is earlier.
- Given that the purchaser is the controlling unitholder of the trust and a substantial shareholder of the trustee-manager, can the independent committee help unitholders understand why it was necessary to include a claim period in the proposed transaction?
- Would the independent committee consider asking the purchaser to waive the claim period so that the Second Tranche Special Distribution can be paid out to unitholders as soon as possible?
Also, as disclosed in the circular, the trustee-manager does not currently intend to enter into hedging arrangements to fix the JPY-S$ exchange rate to hedge the Purchase Consideration.
- Would the trustee-manager help unitholders understand the cost of carrying out a JPY-S$ hedge?
- In not hedging the JPY-S$ exchange rate, is the trustee-manager taking the view that JPY would be relatively strong in the next 3-6 months?
Additional comment/question: In the trust’s announcement, it was stated that SRS investors who wish to appoint the Chairman of the AGM and EGM as proxy should approach their SRS operator to submit their votes by 5.00 p.m. (Singapore time) on 2 September 2020. Given that the AGM and EGM are scheduled to be held on 14 September 2020, is the cut-off excessive and would unduly prevent unitholders who hold units in their SRS accounts to vote on the resolutions? Have the SRS unitholders been given the requisite notice period, especially as the proposed winding up resolution is a special resolution?
President & CEO