Warning Puts Slice on National Golf Stock

Shares of Santa Monica-based National Golf Properties Inc. fell 23% on Thursday after the golf course owner said the firm that leases and operates most of its properties might fail to pay its rent.

National Golf, one of the nation’s largest golf course owners, said it might have to renegotiate its leases with privately held American Golf Corp., the company said. American Golf is no longer generating enough income to meet its rent.

Shares of National Golf fell $3.26 to close at $10.94 on Thursday on the New York Stock Exchange.

The golf course business has generated disappointing financial results this year in part because of the softening economy and bad weather. The drop-off in revenue comes as a construction boom in recent years has increased competition among the nation’s more than 16,000 golf courses.

“The fourth quarter is going to be even worse and put even more pressure on things,” said Steve Sakwa, an analyst at Merrill Lynch & Co., who cut his rating to “reduce” from “neutral.” “You start to get into a downward spiral, and it’s hard to get out of.”

National Golf, which owns Wood Ranch Country Club in Simi Valley and SeaCliff Country Club in Huntington Beach, is the nation’s largest real estate investment trust specializing in golf courses. David Price is the chairman of National Golf, which owns 137 properties, and American Golf.

The leases might be restructured by cutting rents to a level at which American Golf can make payments, Sakwa said. Other options for National Golf include taking over American Golf by forming a taxable REIT unit, or combining the two companies into a taxable corporation, he said.

National Golf officials weren’t available for comment.

Three months ago, National Golf said that American Golf had a technical default on its debt. A technical default happens when a borrower violates a covenant governing the terms of its debt.

National Golf said late Wednesday that American Golf’s default triggered a default on its own debt. National Golf “could experience a material adverse effect on its financial condition,” said the company, which is in talks with its lenders.

The company also said its third-quarter funds from operations rose 18% to $16.7 million from a year earlier. Sales at properties the company has owned for at least a year fell 5.6% in the first nine months of the year because of a slowing economy, increased competition and a drop in tourism, particularly in Phoenix and Las Vegas.

“We believe that our portfolio is well positioned to improve as the general economy moves toward recovery,” National Golf President James Stanich said in a statement. “Our courses are located primarily in major metropolitan markets and are more heavily weighted toward an affordable golf experience.”