Oxley selling Mercure and Novotel for 950 Mil

LETTER OF INTENT FOR SALE OF MERCURE AND NOVOTEL HOTELS AT 28 AND 30 STEVENS ROAD


Oxley Holdings announced in SGX that the group had accepted a letter of intent dated 10 January 2019 for the purchase of Mercure and Novotel Hotels situate at 28 and 30 Stevens Road Singapore at S$950 million.

The Letter of Intent is non-binding and subject to both parties entering into a definitive sale and purchase agreement base on “willing buyer-willing seller” basis.

Some details about the hotel

The land was purchased in March 2013 for S$318 million. The leasehold estate came with a 103-year tenure starting in July 2013. Which means the hotel is left with 97 years of the lease which I consider is a relatively long term.

Novotel Singapore 245-rooms commenced operations from Oct 2017 and Mercure Singapore 518-rooms commenced operations from Dec 2017.

The hotels is valued at S$905 million or S$1 billion for the whole development. Both hotels have a recurring income of S$53 million based on 83% occupancy rate.

 Why Oxley is selling the hotel

Reports have been concern of Oxley Debt to Equity at 235% compare to peers at 71%. The difference can be justified by Oxley aggressive purchase in 2017 and 2018 during the en-bloc fever.

Oxley has also acquired more than 19% of United Engineers for S$326 million and Aspen Group for S$23 million.

Oxley also has S$1.4 billion of net assets that are unencumbered. Oxley also has S$2.8 billion of future progress billing yet to be recognized. Total net debt / Equity is high at 2.2x and Total debt / Assets is high at 57.7%.

Conclusion

Oxley is known to use leverage to grow, which they have been successful for the last 10 years. Equity grew 10x in 8-years yet net debt to equity drop from 5.5x to 2.2x. With that, I believe Oxley is selling the hotel to reduce their debt further to 1.2x.

Author: The Financial Guy

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