Rough Times for Golf Courses
Shares of Santa Monica-based National Golf Properties Inc., one of the nation’s largest golf course owners, on Wednesday suffered their largest one-day loss after a sister company reported financial problems triggered by a slowing economy and bad weather.
The company’s stock fell after it told federal regulators that privately held American Golf Corp., which leases and operates nearly all of National Golf’s 144 properties, had suffered a loss and was technically in default on its debt. As a result, National Golf also was put in default on its credit line, the company said in a filing made Tuesday with the National Securities and Exchange Commission.
National Golf obtained a waiver on the default from its lenders, said Chief Financial Officer Neil Miller. He said American Golf, which has reported losses of $8.69 million during the first half of the year, has continued to make lease payments and has met other financial obligations.
American Golf’s financial problems were related to stormy weather during the beginning of the year, Miller said, and continued economic weakness took a toll on operations.
“We view the weather and the economic challenges as aberrations,” said Miller, whose company’s properties include Wood Ranch Country Club in Simi Valley and SeaCliff Country Club in Huntington Beach. “We expect to see improved operating performance early next year.”
Officials at American Golf, which shares the same Santa Monica office building and key executives with National Golf, were not available for comment.
News of the technical default led Merrill, Lynch & Co. to cut its rating on National Golf to “neutral” from “buy.”
Wall Street also took a dim view. Shares of the real estate investment trust fell $3.25 to $22 on the New York Stock Exchange. The 13% decline was the biggest since the company went public in 1993.
Rival golf course operators and equipment makers also have reported disappointing financial results this year in part blamed on the softening economy and weather problems. The drop-off in revenues comes as a construction boom in recent years has increased competition among the nation’s more than 16,000 golf courses.
One of National Golf’s rivals, Charleston, S.C.-based Golf Trust of America Inc.--is in the process of liquidating the company and selling off its nearly 50 golf courses after struggling under a heavy debt load, industry analysts said.
“Everybody has felt it,” said Doug Howe, executive vice president of domestic operations for Dallas-based ClubCorp Inc., which owns and operates about 200 properties.
The $30-billion-a-year industry has been hurt primarily because of a drop in business-related play, memberships and company tournaments, industry analysts said. Many of those events are highly profitable and keep the courses busy during the week.
“People are not willing to pay $10,000 to $15,000 [for memberships] if times are tough,” said Steve Sakwa, senior real estate analyst for Merrill Lynch.
It is difficult for golf course operators to cut expenses in response to a slump in business without angering their repeat, high-end customers who are accustomed to manicured surroundings.
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Bloomberg News was used in compiling this report.
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Teed Off
Shares of National Golf Properties had their biggest one-day drop Wednesday on concerns about future earnings.
National Golf Properties, monthly closes and latest on NYSE
Wednesday: $22.00, down $3.25
Source: Bloomberg News
