Oxley Holdings Ltd (SGX: 5UX) is a home-grown property developer which is mainly engaged in property development and investment. Last week, Oxley shares added 10.5% to end at S$0.315, the highest close since early October 2018. What could be the reason behind the euphoria?
Sale of Stevens Road hotels
On Thursday (10 January) after the stock market closed, Oxley announced that it had accepted a letter of intent (LOI) for the purchase of its Mercure and Novotel hotels at Stevens Road for S$950 million. The buyer of the hotels was not revealed in the announcement.
The LOI is intended to be non-binding and is subject to the parties entering into a definitive sale and purchase agreement. Under the terms of the LOI, upon receipt of S$9.5 million, the purchaser can carry out due diligence until 15 April 2019.
The buyer will then pay S$38 million on 28 February, and a further amount of S$47.5 million when the definitive sale-and-purchase agreement is signed or on 15 April, whichever is earlier. The sums are non-refundable.
More insights into the hotels
The Mercure and Novotel hotels were valued at S$905 million, according to a presentation by Oxley in November 2018. The two hotels generate a total recurring income of S$53 million per year, based on an 83% occupancy rate.
In its latest earnings update for the first quarter ended 30 September 2018, the company said that its Mercure and Novotel hotels “continue to improve its occupancy and average room rates”.
With the sale of the hotels, there will be a lack of income, which looks substantial to me. Oxley then has to look for ways to replenish the income-vacuum.
The Foolish takeaway
To be sure, the sale of the Mercure and Novotel hotels have not been sealed. Investors also have to be aware of the lack of recurring revenue from the hotels if the deal goes through. This is on top of the additional property cooling measures announced in July 2018 by the Singapore government which could affect the company’s property sales here.
Oxley’s announcement may sound great at the first instance. However, buying shares based on news flow alone is not a great way to invest. Stocks are not mere pieces of paper; they represent part-ownership in businesses. As such, whenever we buy a stock, we should research thoroughly on the fundamentals of the business and determine if the company can grow for the long-term consistently.
At the closing share price of S$0.315 on Friday, Oxley had a price-to-book ratio of 0.9 and a dividend yield of 4.8%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.