Background. Roxy-Pacific is a home-grown property and hospitality group with an Asia-Pacific presence. During 2004 to 2014, the company has developed and launched a total of more than 3,000 residential and commercial units in Singapore. In recent years, Roxy has diversified overseas, with 98% of its existing land bank of 856,249 sq. ft. comprising of properties in Australia and Malaysia.
As of 30 September 2015, the company has progress billings of S$412m to be recognized as revenue from 4Q15 onwards. In comparison, the company earned revenue of S$317.8m from property development (S$263.3m) and investment (S$6.6m) and hotel ownership (S$47.9m) in 2014.
Noku Roxy – First own brand of hotels. Given the company’s exposure to the property business, the creation of its own brand of hotels is a refreshing signal from the company to grow its business breadth and enhance long term shareholder value. The Kyoto hotel is 100% owned by Roxy-Pacific and sits on land area of about 10,155 sq. ft., with about 81 rooms in total. The hotel can be said to enjoy good location as it is adjacent to the Kyoto Imperial Palace.
Online room rates seen at around S$300/night. According to the press release, room prices start from JPY 20,000 (S$232 @ SGDJPY86.16) per night. We referred to the hotel’s online booking website and noted that prices generally range from JPY26,136 (S$303) per night for the single “House” room to JPY40,392 per night for the premier luxury twin room. The “Noku Suite” goes for about JPY178,200 per night (S$2,068). While the room rates might be seasonable, we estimate that room rates may go for about S$250 to S$300 per night Our cursory view of room availability over November and December suggests decent demand for the rooms.
Financial Estimates for Kyoto Hotel
|
Room Rate (S$)
|
250
|
300
|
|
No. of Rooms
|
81
|
81
|
|
Occupancy (days)
|
300
|
300
|
|
Est. Revenue (S$m)
|
6.08
|
7.29
|
|
Est. Net Operating Margin
|
30%
|
30%
|
|
Est. Net Operating Profit
|
1.82
|
2.19
|
|
Cap rate
|
5%
|
5%
|
|
Valuation (S$m)
|
36.45
|
43.74
|
|
Land Cost (S$m)
|
25.1
|
25.1
|
|
Construction cost (S$0.1m/rm)
|
8.1
|
8.1
|
|
Revaluation Surplus
|
3.25
|
10.54
|
|
Return
|
9.8%
|
31.7%
|
|
Average
|
|
20.8%
|
Source: NRA Capital Estimates
10% to 30% return. Based on the parameters or assumptions in the table above, we estimate that the hotel may be able to generate S$6m to S$7.3m of revenue per year for Roxy. Applying a cap rate of 5%, a revaluation surplus of S$3.25m to S$10.54m is estimated, depending on the room rate achieved ultimately. Roxy does not carry its hotel properties at fair value on its balance sheet. However, the company discloses regularly the revaluation surplus of its Grand Mercure Singapore Roxy hotel and office premises at Roxy Square (S$551.2m fair value as of 30 September 2015).
Average Daily Room Rates in Japan
Source: Bloomberg
Our view. Industry data shows that average daily room rates have been rising in Japan, by about 20% year-on-year in September 2015, with average occupancy rising to 85.3% from 84.1% a year ago. Hence, Roxy’s investment in the Japan market, though relatively small, seems astute. Roxy’s share price has fallen by about 14.3% from the beginning of the year, compared to 7.1% for the FTSE ST Real Estate Index. Likewise, it trades at about 0.62x price to adjusted NAV (ANAV) of S$0.769, versus 0.8x price to book for the FTSE ST Real Estate index. If we mark Roxy’s valuation to 0.8x P/ANAV as of 30 September 2015, the company would have been worth S$0.615 per share, versus S$0.480 as of 11 November.
Price to Book Comparison
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Source: Bloomberg