SINGAPORE (August  6): Eric Low, deputy CEO of Oxley Holdings, has his eye firmly fixed on the company’s cash flow. Based on its corporate presentation in July, the market is anticipating a cash inflow of $368 million for the second half of this calendar year. (Oxley has a June year-end.) The cash assumptions are based on an expected cash flow of $230 million from the Royal Wharf development in London, and $138 million from the sale of Dublin Landings Office Blk D.

Royal Wharf is, arguably, Oxley’s magnum opus. In 2013, as a mid-sized developer known for building shoebox units in Singapore, the company acquired a 15.2ha site in a distressed sale from Ballymore Group which, at the time, had to repay Ireland’s National Asset Management Agency. The total gross development value (land cost plus construction and possible margin) of Royal Wharf is estimated at £1.5 billion ($2.04 billion).

By June last year, Oxley had launched all the 3,082 units and, as at March 31 this year, 3,052 units had been sold. Oxley has handed over more than 1,000 units and has unbilled progress billings of $1.2 billion. Royal Wharf will be fully completed by 2020.

However, it was not Oxley’s solo mega-London project that unnerved investors in July, but its acquisitions at home. When the Singapore government announced a series of stringent property cooling measures on July 5, Maybank-Kim Eng immediately downgraded Oxley to a “hold”. It was only in June that the local broker had issued a 44-page report on the developer with a “buy” recommendation.

On July 9, Oxley’s management met with investors and analysts to clarify its cash flow position. For the three months to March 31, the company had a cash outflow of $890 million, as a result of spending $712.6 million on investment property, which was likely partly attributed to the $660 million paid for Chevron House and the $100 million spent on its asset enhancement initiatives (AEIs).

Oxley will announce its FY2018 results on Aug 28.

Oxley’s finance cost per quarter is around $15.4 million, based on which its interest cover is around 3.8 times. Bloomberg’s 12-month trailing interest cover for Oxley is at around 4.5 times.

“Revenue from our overseas projects over the next two to three years will be sufficient to meet a big part of our debt obligation,” Low says.

Projects that have been sold and from which Oxley is waiting to “book” revenue, cash flow and earnings include Royal Wharf; possibly a second block at Dublin Landings that is close to being sold; and The Palms in Cambodia, where it has sold 61 out of the 116 units and will book $46 million in revenue.

“We put these numbers out to justify to everyone that we’re in far better shape than everyone thinks. We do not want a repeat of 2013 when we had [to develop] Royal Wharf and everyone said that Oxley was going to die because we over-­expanded in London and [then subsequently] that we would be hit by Brexit,” he gripes.

Looking at future cash flow

“We’ve looked at our future cash flow based on all these projects,” Low continues. “We have quite good numbers coming in. For net cash flow, we take into account the committed sales minus construction cost and land cost. [For instance,] for Dublin Landings, we don’t pay for the land, and Royal Wharf’s land costs are already paid for and it is debt free. In Cambodia, we have paid off the land cost and so we have no loan on that.”

As at March 31, Oxley’s total unbilled contract value was $1.57 billion, of which about $140 million is attributable to the projects in Singapore and about $1.43 billion to overseas projects. “We still have $3 billion in unbilled progress billing,” Low says, implying that the company will have a further $3 billion of cash inflow.

Another source of cash flow is Oxley’s investment properties. The company is hoping to achieve a net property income yield of 6% for Chevron House once the AEIs are completed. The building’s current efficiency is 65%, but following an AEI, it is likely to rise to 85.07%, based on the company’s projections.

A more immediate form of revenue is its 254-room Novotel Singapore on Stevens and 518-room Mercure Singapore on Stevens. The average occupancy rate for the January to June period was 70% for Novotel and 65% for Mercure. At an occupancy rate of 70% a year, income for the hotels is estimated at around $43 million a year. Oxley is looking at a stabilised occupancy of 88% a year. The two hotels and 11 commercial units at the property are valued at $980 million.

Elsewhere, Oxley owns a 55% stake in Flora Vista and commercial units at The Rise @ Oxley. Both freehold properties provide the company with a recurring income. Oxley also owns Space @ Tampines, which provides a recurring income of $11 million a year.

Focusing on bond redemption

With its future cash flow secured, Oxley will be in a comfortable position, Low believes, in particular to redeem its $300 million of retail bonds due on Nov 5, 2019. “We have consistently paid down all our notes without fail,” Low says, pointing to the company’s track record of bond repayment (see Table 1).

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Earlier this year, the Singapore bond market experienced its first default of a retail issuance — Hyflux’s $500 million of perpetual securities sold to retail investors in 2016.

Ironically, Oxley launched its $300 million of retail bonds in April 2016 (see Table 2), at the same time as Hyflux. “When Hyflux launched their retail bond, we also launched a retail bond,” Low recalls. DBS advised Oxley to launch in May, after Hyflux’s launch, as the latter had a stronger brand name. The rationale, Low remembers, is that Oxley’s bond offering was unlikely to be as popular as Hyflux’s. “Luckily, we launched one week before Hyflux.”

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As it turned out, Hyflux’s perpetual securities launch was upsized from $300 million to $500 million. Would Hyflux have upsized the offering to $800 million had Oxley not taken the first bite of the cherry? “I kept thinking about DBS’s advice, about launching after Hyflux and I thought we should launch before Hyflux, so we launched one week before. Then we took [in] about $300 million,” Low reminisces.

Unlike Hyflux, though, Oxley appears to be in a more comfortable position, with the ability to redeem its retail bonds. “Our first [retail] bond is going to be due at the end of 2019,” Low says. Unlike companies that are looking to refinance or “roll over” their bonds, Low believes the best way forward is to redeem them.

“We’re ramping up the completion of our overseas projects, especially the Dublin site, the Cambodia site and most of the London site, to prepare all these funds to come in to pay down the bond. We have never thought of going back [to the market] to refinance,” Low says.

To be sure, the Singapore dollar non-rated bond and perpetual securities market appears to be very challenging at present. Apart from Hyflux, a couple of other non-rated high yield issuers have been unable to tap the market at reasonable rates. This is due to tightening local liquidity as a result of rising local interest rates, on the back of a tightening and hiking cycle by the US Federal Reserve.

Oxley is well aware of this. After all, it was during the quantitative easing years that the company came of age, turning its capital at a very fast clip, enabling it to grow to its current size with assets of $5.6 billion.

Even now, following a spate of en bloc acquisitions last year, the Chevron House acquisition, the purchase of a land plot in ­Cyprus and another in Cambodia, all of which cost the company almost $2 billion, Oxley’s debt stands at $3 billion.

Already, Oxley has launched at least five of those sites, including one that is fully sold — Verandah Residences — with a margin of 25% and a pre-tax profit of $62 million. “We’re trying to get things constructed, get it through and complete our projects,” Low says.

Oxley’s jovial, larger-than-life executive chairman and CEO Ching Chiat Kwong says everything is for sale, including the hotels on Stevens Road. The main cause of Oxley’s $3 billion debt is its investments, such as the $450 million of debt the company took on for Chevron House, $560 million of debt for the hotels on Stevens Road, and $170 million for the acquisition of United Engineers shares. Oxley now owns about 19% of United Engineers, an engineering services and property development company, and 10% of Aspen (Group) Holdings, a Malaysia-based property development group.

Based on some estimates, Oxley’s average cost of its land bank is $1,393 psf and cost psf per plot ratio is $725 (see Table 3), making the cost of Oxley’s land bank the lowest among the small and mid-cap developers.

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Oxley has already sold more than 610 units (out of 800) at Riverfront Residences (the former Rio Casa), and 141 units at Affinity at Serangoon (the former Serangoon Ville). “Bear in mind that once the Singapore projects achieve their temporary occupation permits in 2021 and 2022, we will make $400 million to $450 million in profit, and we can still get back the $500 million of equity that was sunk in,” Low says. “And once the project is done, it will knock down the borrowings that we have.”

According to him, Oxley’s net exposure to the local residential market is 1,900 units, and its net exposure to the land value is $1.5 billion. Once the projects are sold and handed over, Oxley will get back the projects’ gross development value, including its equity in the projects, and debt will be pared.

“We’re talking about a potential of $2.5 billion net coming in, which is two times the coverage of the $1 billion in bonds we are exposed to,” Low says referring to the total amount of its outstanding bonds (see Table 2).

As a result, Low is confident Oxley can clear its “the wall of debt” as it launches and sells projects. Ching too, does not seem too perturbed by Oxley’s exposure to the local residential market. “We’re very determined to clear all that debt. Just launch,” he says.

Meanwhile, there is still liquidity around looking for good commercial property, and Oxley’s hotels can always be sold if the price is right. The message to the market is, Oxley’s debt is manageable and it will be able to redeem its bonds and maintain its exemplary reputation.

Oxley to redeem retail bonds due 2019 with scheduled cash inflow from foreign, local sales

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