Oxley selling Mercure and Novotel for 950 Mil

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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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