Singapore Property ~ Oxley - DBS Research 2019-01-14: A Much-Needed Ang Pao

OXLEY HOLDINGS LIMITED (SGX:5UX)

Singapore Property ~ Oxley - A Much-Needed Ang Pao

Oxley Holdings accepts a non-binding LOI to purchase its Mercure and Novotel Hotels for S$950m (S$1.23m per key).
The price is at a 5% premium to book value and the estimated gross yield is 4.7%.
The sale, if completed, would alleviate some concerns on debt repayment risks, especially its S$450m retail bonds maturing in November 2019 and May 2020.
Other key concerns including
1. 3,700 residential units of launch pipeline and unsold inventory,
2. potential receipts of proceeds from overseas projects,
3. potential divestment of Dublin properties.

OXLEY HOLDINGS LIMITED (SGX:5UX) has just announced its acceptance of a non-binding letter of intent (LOI) to purchase its Mercure and Novotel Hotels on Stevens Road for S$950m (S$1.23m per key). The due diligence will be carried out during the period up to 15 April 2019.

The price is 5% above the book value of S$905m as at 30 June 2018. We estimate that the gross yield (based on annualised six months' revenue from opening up to June 2018) is 4.7%. The hotel started operations in 4Q17 and had hit 84% occupancy rate in August 2018. It was still incurring an operating loss as at end-June 2018. The land tenure is 103 years leasehold from 18 July 2013.
As a comparison, the divestment of Ascott Raffles Place Singapore (a mature hotel on 999-year land lease), which was announced by ASCOTT RESIDENCE TRUST (SGX:A68U) yesterday, was priced at S$2.4m per key with an estimated gross yield of low-to-mid 2%.

This is in line with our previous commentary (Singapore Property ~ Zeroing in on Oxley Group: Oxley Holdings Limited - Riding On Residential Tailwinds). We had previously wrote that “the potential unlocking of its Singapore hotel assets could fetch bids of S$1.2m per key”.
If the sale of the hotel is completed, we believe the cash proceeds will be able to alleviate some of Oxley’s urgent cash requirements, especially in repaying its retail bonds (S$300m expiring on 5 November 2019 and S$150m expiring on 18 May 2020). The net debt-to-equity could potentially be reduced to 1.8x from 2.5x as at September 2018.
However, the key still lies on the sale performance of 3,700 residential units of launch pipeline (largest land bank in Singapore) and unsold inventory, potential receipts of proceeds from some of its overseas projects such as Royal Wharf and potential divestment of Dublin properties.

Rachel TAN DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2019-01-14

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