Oxley's new game plan

“We were so excited. I reached the office at 8am just to wait for this interview. Shawn is wearing a long-sleeved shirt and leather shoes,” he laughs, referring to his son, who serves as the company’s executive director and general manager.

Ching’s enthusiastic demeanor is obvious in this interaction. This bubbly trait has proven useful to the property mogul who managed to continue selling his condominiums, despite the circuit breaker measures restricting non-essential activities between April 7 and June 1.

“We are still selling quite a bit. We clocked an average of one to two units a day this time,” he muses. Between April 7 and May 20, Oxley sold over 40 units across three projects: Affinity at Serangoon, Riverfront Residences and Kent Ridge Hill Residences.

Oxley had acquired these sites from en-bloc sales and government land sales between 2017 and 2018. Its first en-bloc acquisition was of Rio Casa (now Riverfront Residences) for $575 million. This was followed by Serangoonville (now Affinity at Serangoon) for $499 million. Its other residential acquisitions (see table) were relatively modest except for Mayfair Gardens and Vista Park (now Kent Ridge Hill Residences) which it acquired for $311 million and $418 million respectively.

These acquisitions have yielded results, with the developer selling 73% of its Singapore development portfolio or 2,858 units as at April 30. This translates to $2.4 billion in secured revenue, which will be recognised over the next two years as the projects are completed and achieve their temporary occupation permit (TOP). Oxley’s share of the yet-to-be recognised income is $1.4 billion, the company noted in a May 1 regulatory filing.

The bulk of these funds comes from sales at Riverfront Residences, in which Oxley has a 35% stake, and Affinity at Serangoon, where it holds 40%. As at April 30, Oxley had sold 86% of units at Riverfront Residences, giving it a secured revenue of $900 million. A further $608.4 million was set to flow in from the 68% of units sold at its Affinity at Serangoon project. Meanwhile, Kent Ridge Hill Residences, in which Oxley has 100% ownership, was 55% sold, giving it a secured revenue of $280.4 million.

“We managed to sell a big chunk last year. Because our projects fall in the mass market range, the upgraders are still there and we are in a good position to sell,” explains Ching. Four of Oxley’s projects: The Verandah Residences, 1953, Sea Pavilion and The Addition, will receive their TOP this year, deputy CEO Eric Low notes.

The Addition at Potong Pasir, received its TOP on April 22. Located at 21 Meyappa Chettiar Road, the eight-storey condominium has 26 apartments that have all been sold. It has a gross development value of $36.8 million. Prior to redevelopment works, Oxley had acquired 898.1 sq m (9,667 sq ft) from the previous development, Apartment 8, for $21.53 million.

Revenue recognition for private property development projects in Singapore is recorded on a percentage of completion basis. But with most migrant workers in the construction sector issued with stay home notices and quarantine orders after an outbreak of Covid-19 among those living in dormitories, ongoing projects are bound to be delayed by a couple of months.

For now, Ching says Oxley does not have any new projects in the pipeline. “All the resources will go into existing projects and for those projects on which work has not started yet,” he says. He adds the company “will try to sell as many units from the balance” 680 units, which represents Oxley’s stake in the total 1,065 unsold units.

On the commercial front, Oxley announced on May 21 it had entered into an expression of interest (EOI) for the sale of the retail podium and banking hall of its 30 Raffles Place (the former Chevron House) for $315 million. The company has not identified this buyer or mentioned if it is linked to Golden Compass — the purchaser named in its proposed $1.03 billion sale of Chevron House last April. The 32-storey property has a net floor lettable area of 261,280 sq ft.

Under the EOI, the prospective buyer may opt to sign a binding sale and purchase agreement with Oxley Beryl — the owner of the development — by June 15. Thereafter, the divestment will be completed by June 30.

Oxley paid $600 million for Chevron House back in 2017. Low, without specifying the gains the company can book, says that the company can enjoy “very good profits” from the deal.

RHB Securities’ analysts Jarick Seet and Lee Cai Ling estimate that Oxley will be able to book a gain of $200 million from the sale. They had expected the sale to fetch a higher price but reasoned it fell short of expectations because of the virus-hit economic climate.

“Despite a lower selling price, we feel it is still in Oxley’s favour to sell the asset, as it should still be making good profit. Additionally, the $200 million incoming from the sale should allow the group to shore up its balance sheet and quench investor’s fears on its debts,” the analysts point out. “It should also allow Oxley to capture opportunities with better upsides in such a tough climate”.

Stable property prices

The 30 Raffles Place deal was sealed despite the circuit breaker measures - although Oxley needed to reach an agreement with just one buyer. Now, moving the rest of the residential units will be a slightly different story.

While sales volumes of residential units have plunged, Ching points out that prices have not really moved noticeably lower. “Everybody’s sales have been affected. We’ve been selling units and the valuations have not changed much. But if this drags on, it may have an adverse effect,” Ching acknowledges. “I’m surprised some of the high-end apartments are selling. It is good that foreign investors will still come in and buy.”

“For the general population, the dream of owning a private apartment is still there. It’s whether the banks will continue to support mortgage applications or loans from the buyers,” he adds.

Ching believes that the current low interest rate environment could put a floor under prices and help the market recover once the pandemic comes under control. And the new normal of working from home could encourage more home-owners to upgrade to a bigger unit.

On the other hand, as the construction sector adapts to the post-Covid-19 way of operating, costs will rise and have to be passed it on to the developers. This will make it difficult for prices to come down significantly, mulls Ching. “I think prices will come off a little, but not to where they were two years ago,” he says. Drawing on his experience, he adds that land prices rarely fall, and if they do, the decline is usually limited. The mass market is thus likely to stabilise at a certain price.

In fact, Ching says the government’s cooling measures in 2019 have helped to stabilise prices. “Our prices have been pretty much controlled. Cooling measures actually moderated prices, so you don’t see the fall in prices because what needs to be corrected, has already been corrected,” Low adds.

A recent report by RHB Securities points out that the number of unsold units have been falling. “After peaking in 1Q2019, unsold units have declined, with 31,099 units (including executive condominiums) as at 1Q2020 versus 38,710 units as at 1Q19,” it states. Furthermore, overall vacancy rates have declined to 5.4%. “While there are still some units in the launch pipeline arising from the 2017–2018 en-bloc cycle, supply pressures could ease post-2021, if demand continues to stay resilient,” the report elaborates.

A litmus test for land prices could materialise soon. On May 28, the URA launched an 8,880 sq m (95,584 sq ft) site at Tanah Merah Kechil Link. Bidding will close on Oct 29. The site has a maximum built-up area of 24,864 sq m, or 267,634 sq ft. Real estate services firm Cushman & Wakefield estimates the winning bid to range between $820 psf per plot ratio and $870 psf ppr. The most recent successful bid for a nearby piece of land was made by Chip Eng Seng in 2016. It paid $761 psf ppr.

Real estate development fund

Given the global economic recession and a risk of a steep fall in property prices, RHB’s Seet and Ling believe Oxley might cut selling prices so that it can finish selling the unsold units. With the expected cash inflow of more than $700 million, Oxley can then channel the funds into its future plans.

Under weak economic conditions, Oxley will be a lot more restrained in building up its land bank. “We won’t repeat the 11 pieces of land saga again. One land parcel is too big for us now,” quips Ching, referring to the years when Oxley took on numerous projects at one go, which needed much management dexterity and luck to avoid over-burdening its balance sheet.

Instead, Ching is looking to set up a real estate development fund to scour for opportunities in developed, transparent markets. “We are thinking of setting up a fund where we will take a small equity of 20–25% and use the funds to look for opportunities,” he elaborates. “A real estate investment fund is nothing new, because it doesn’t drain you so much. You make a small fee, but if you can work it out, it doesn’t stretch your balance sheet”.

The idea was inspired by his experience with property developers and investments, particularly in foreign markets. “I have been to a dozen countries, and some are really worthy for us to consider reinvesting our capital into,” says Ching, He is now looking to work with other investors, and lead operations of the fund in the next year or two.

Trouble in Cambodia

Oxley is no stranger to investing in properties abroad. One of them is The Peak in Phnom Penh Cambodia, a 55-storey mixed hotel development comprising one hotel tower and boasts two towers of 2,345 residential, office, retail units and a multi-storey carpark.

As it turned out, the project was fraught with challenges and was eventually delayed as the parent of its main contractor — Sino Great Wall Engineering Co (SGW) faced financial difficulties. Hence, Oxley called on two performance bonds furnished by SGW and appointed a new contractor — state-owned enterprise China Railway Urban Construction Group Co (CRUCG) — to complete the projects.

However, SGW refused to vacate the site and make way for CRUCG as ordered. Oxley eventually obtained an injunction order to evict SGW on Feb 14. The eviction order was subsequently executed by the Cambodian court bailiff on Feb 25.

Since the eviction, SGW has applied for an order in the Cambodian courts for Oxley to suspend work on The Peak. On April 1, Oxley launched legal proceedings against SGW in Singapore to seek compensation for all damages suffered due to SGW’s repeated breaches of its obligations.

In its May 1 update, Oxley noted that the project has made “remarkable progress”. It estimates that the project will be completed progressively from mid-2020 to 2021. Oxley has a 79% interest in the project and so far, 85% of the units have been sold.

Halfway across the world, 95% of the 3,380 residential apartments of the company’s flagship Royal Wharf project in London have been sold. The project is expected to be fully completed by end-2020. Ever since the UK government imposed Covid-19 lockdown measures, Oxley has been working with the project team on site to better utilise its limited resources to complete each progressive project milestone so that the apartments can be delivered speedily. As of April 28, more than 2,800 units have been delivered to the buyers.

Similarly, its Dublin Landings Project in Ireland is on track for completion this year. The commercial development spans 65,000 sq m (699,654 sq ft) of office, retail and residential space. To date, all five commercial buildings have achieved completion and have been sold to third parties. One of the eight residential buildings has been handed over to the buyer, Greystar, while the remaining buildings are in advanced stages of completion and will be completed progressively over the rest of 2020.

Across the Causeway, Oxley’s KLCC project in Kuala Lumpur is also facing challenges from the movement control order. The project comprises two residential blocks and two hotels. So far, 222 of the 590 units available for sale have been sold. Oxley says it is working with its contractor and partners to complete the project on schedule.

Analyst calls

Oxley started off in Singapore as a developer of “shoebox” units during the go-go years of quantitative easing after the Global Financial Crisis and a revival of interest in the property market. It eventually listed in 2010, with a market cap of around $565 million. As of June 2, the company has a market cap of $1.04 billion.

Despite the negative impact of the pandemic, analysts say Oxley is in good shape to ride out the Covid-19 recession. “Heading into a potentially prolonged Covid-19, the key risks for Oxley are construction delays and completion risk. We believe the group has sufficient liquidity to cover all non-rollover maturing debt in 2020, despite its high net gearing (1.94 times),” UOB Kay Hian analysts Loke Peihao and Nicola Ho pointed out in an April 13 note.

RHB analysts Seet and Ling agree. Oxley’s hotels at Stevens Road, which it tried to dispose of previously, have been used as alternative quarantine sites for Covid-19 patients. As a result, instead of empty rooms due to the travel ban, the hotels enjoyed full occupancy in April. With the 75% wage co-payment by the government, the analysts expect Oxley to generate lower operating costs, and instead turn a profit, from this deal.

For now, Oxley is “comfortable with its current cash position and is still keen to reward shareholders with a special dividend this year”, the RHB duo points out. However, a key risk they foresee is a global recession and a possible crash in property prices.

Nevertheless, RHB and UOB Kay Hian are maintaining their “buy” calls on the stock with target prices of 29 cents and 48 cents respectively. Oxley closed on June 3 at 25 cents, which values the company at 1.625 times its net asset value and 9.9 times historical earnings.

Both Ching and Low, the largest and second largest shareholders of the company, have been regularly buying shares from the market. Ching’s most recent purchase was made on March 23, when he bought 200,000 shares at 19.75 cents each. Low, on the other hand, bought 200,000 shares on March 13, at 24 cents each. Ching now holds 42.51%, while Low holds 28.18%.

As Singapore lifts its circuit breaker in phases, Ching is likely to be perkier, not just because he can get out and about. If all goes according to plan, the showflats of his projects should be able to re-open for viewing, and Oxley will be able to sell the remaining 1,085 units, long before the developers’ additional buyers stamp duty sets in — just in time for his next act.