Property happenings – week ending 13 January 2019

Oxley – Sale of hotel asset

The more significant happenings this week is the news that Oxley Holdings has accepted a letter of intent to sell its Mecure and Novotel hotels along Stevens Road for S$950 million. Oxley was the accumulated significant investments in the en bloc wave that hit the Singapore market in 2017/2018 as well as significant investments in other property assets such as S$660 million of Chevron House and accumulation of significant interest in listed Company United Engineers. Based on a disclosure on significant shareholding movement on December 2018, Oxley has more than 120 million of shares in United Engineers which based on market valuation is worth about S$300 million.

With increased uncertainty in being able to sell the en bloc sites acquired in 2017/18 prior to the Government cooling measure at a profit, cashing out on the hotel asset will enable Oxley to deleverage to reduce the risk of slowdown of the residential market which could lead to devaluation of property assets.

See below for the pro forma balance sheet following the divestment based on the 30 September 2018 balance sheet.

 

  30 Sept 2018 Proceeds from sale of hotel asset  
  S$m S$m S$m
Total borrowings 3,789.6 (950) 2,839.6
Total assets 6,276.1 (950) 5,326.1
Gearing 60%   53%

 

Run up of property developer counters

In line with the broad based market recovery with the optimism generated from the US-China trade talks, developer shares highlighted in my blog in the previous week recovered from their 52 weeks low. This is reversion to mean working at its optimal speed this week.

  4 Jan 19 11 Jan 19 Change %
  S$ S$ S$
City Development 8.08 8.90 10.1%
UOL 6.08 6.63 9%

The change in market highlight the benefits of spotting opportunities which the market is offering you as I mentioned in my blog post previously the 2 counters are trading at their 10 year historical low price to book ratio. At current valuation, it is safe to say the counters although not as attractively price, is still trading below its average price to book ratio. With that knowledge in mind, you will have the peace of mind to stay in the market and only sell at a reasonable level.

To conclude this week’s post lets examine the price to book ratio of the 3 shares mentioned above.

  NAV per share at 30 September 2018 Price at 11 Jan 2019 Price to book ratio
  S$ S$  
City Development 11.20 8.90 79.5%
UOL 11.24 6.63 59.0%
Oxley 0.35 0.315 90%

 

Anyone saw a mispricing? Food for thought people.

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