TWC Commentary (Clublink)

I live and grew up in Southern Ontario, and the first stock I ever owned was Clublink back when Bruce Simmons was at the helm. I still play many Clublink courses on a regular basis, but I’m not a Clublink member. Below is an off the cuff analysis of what Clublink is part of today. It’s now under the umbrella of TWC which is listed on the TSX and controlled by Morguard’s Rai Sahi.

TWC is essentially two separate operating businesses: golf course operations and rail/port facilities. Its a strange combination, and I wonder whether this is beneficial to shareholders or whether the main driver is Rai Sahi’s ambition? Either way, Sahi is a successful leader and he’ll likely create value for shareholders regardless (and still make some money for himself, since he owns almost 70% of the equity and votes).

Clublink owns and operates 45 golf clubs in three distinct regions (Ontario, Quebec, and Florida). I was at dinner at National Pines, a Clublink course in Barrie Ontario, and our table was commenting on various Clublink courses. One person at our table actually worked in IT for Clublink and mentioned that National Pines was actually just leased and operated by Clublink, and he confirmed that this was also the case for Bond Head. This was confirmed after I examined the AIF for 2013.

Clublink also formerly had an operating agreement with Delta resorts to operate the hotel properties, but this agreement has been mutually terminated, and Clublink will now operate its resort properties internally.

Clublink shared the distribution of its segmented revenue by type, here are the details:

Annual Dues 39.96%
Corporate Events & Daily Fees 22.46%
Food & Beverage 28.80%
Room & Other Merchandise 8.78%

Also, based on the information disclosed in their AIF, Clublink is achieving an operating margin of about 30% from its golf courses. Labour represents about half of the operating expenses. Long term borrowings represent about 55% of property, plant, and equipment. Would it be possible for Clublink to create a REIT to leaseback the golf properties back to Clublink?

Clublink has some mortgages against its properties ranging in rate from 6.2% to 8.3% and the mortgages are laddered from maturities 3 to 15 years.

Deep into note 13 to the most recent quarterly financial statements, there are details of related party transactions. Strategically, TWC has an open revolving credit agreement open to Morguard Corporation for $30,000,000 at TWC’s borrowing rate plus 10 bps. More importantly, TWC make a similar facility availably to Paros (a holding company owned by Sahi) for $5,000,000 at prime plus 1% and the same terms are provided by Paros to TWC. Sahi is a very strategic operator. There are also officer loans outstanding of about $1.2 million bearing interest at 3% (a pretty favourable rate).