Excerpts from DBS Group Research report
Analysts: Rachel Tan & Derek Tan
CRITICAL DATA POINTS TO WATCH
Launching remaining six residential projects with a total of 600 units in Singapore in 2019. Since 2016, Roxy has accumulated 11 pieces of landbank with a total of 900 residential units.
As at end-FY18, Roxy has a pipeline of six projects with a total of 600 units expected to be launched in FY19. Management expects to launch another three new projects in 1H19.
Even as sentiment continues to soften, we believe the better located freehold sites will still garner interest given its good sales takeup for Arena Residences.
Beefing up its recurring-income portfolio. Since the slowdown of the Singapore property market in 2013, Roxy had started to venture out of Singapore and expanded its horizons to build its portfolio of assets to improve recurring income and provide earnings stability.
In FY17, Roxy acquired four commercial buildings – two in Australia, and two in New Zealand – adding to its portfolio of one commercial building (excluding the divestment of 59 Goulburn, a commercial building).
In FY18, Roxy reinvested in three commercial buildings (two in NSW, Australia and one in New Zealand) for a total of S$117m, after divesting 117 Clarence St for almost double its acquisition price in 2016.
The properties are estimated to yield c.5% in Australia and c.6% in New Zealand. In addition, the group continues to build its hospitality segment, which will add to its recurring income. In FY17, the group acquired Tenmabashi Grand Hotel Osaka for JPY3bn. These properties will start to contribute from FY18 onwards.
Realisation of development projects in Australia upon completion. Roxy’s investments of development projects in Australia in 2015 will soon pay off when five projects are completed by 2018.
The projects have all been substantially sold (95% sold) except for the last project launched in 3Q17, Art House at West End Glebe. The units sold have a total sales value of more than S$300m and could potentially contribute to FY19F-FY20F earnings.
Undervalued Net Asset Value (NAV). The group’s NAV is conservative largely because the carrying values of its hospitality portfolio are at historical cost.
In addition, development properties comprise close to 60% of its total assets, which typically offer more upside upon realisation of these development properties.
Its RNAV is more than double its current NAV.
Net debt to equity stood at 1x in FY17. Roxy’s net debt to equity stood at 1x as at end-FY17. We expect the ratio may increase to 1.7x following landbanking / development activities, and acquisitions of investment properties in FY18.
While it may seem high, its NAV could be conservative as mentioned above. The group’s net debt to adjusted NAV (ANAV) stood at 0.6x as at FY17.
Full report here.