• Dividend underpinned by Orchard retail assets
• Strong balance sheet will buttress group
• Potential upside through HPL stake

Stable dividend yield supported by prime Orchard assets

Recent flash estimates of the URA private residential property price index showed a 0.6% decline in 3Q14 – a fourth consecutive quarter of price decrease cumulating in a 3.8% dip since its peak in 2Q13. We expect unabated headwinds in the weak domestic residential market going ahead and prefer developers with sizeable income from investment assets, a strong balance sheet and potential upside catalysts. Wheelock Properties (S) Limited (“Wheelock”) provides a stable dividend yield of 3.3% underpinned by the group’s prime Orchard retail assets: Wheelock Place and Scotts Square Retail. As at end Jun 2014, Wheelock Place was 100% occupied with an overall monthly rental of above S$13 psf per month. Scotts Square Retail was 93% occupied, with an average rental of above S$22 psf per month, and management reports that they are actively looking at rejuvenating the mall with stronger international luxury labels and F&B concepts.

Strong balance sheet can buttress group through downturn

The group’s domestic residential projects, Scotts Square (338 total units), The Panorama (698 total units) and Ardmore Three (84 total units) are 79%, 38% and 4% sold, respectively. While SG residential sales are likely to remain uninspiring, Wheelock’s development asset exposure is contained at 30% of total assets as at end 2Q14, and we believe the group’s solid balance sheet, with a healthy cash balance of S$410.0m and low gearing of 7.3%, will likely buttress it through the residential down-cycle ahead.

BUY on current price weakness

Finally, we continue to view Wheelock's 22.6% stake in Hotel Properties Limited (HPL) shares as another potential catalyst, which could precipitate further upside should HPL decide to optimize and extract value from its multiple highly-prized but under-developed assets in the Orchard area ahead. Wheelock is our top pick amongst the mid-sized developers and we advocate that investors buy on its recent price weakness, particularly as it finds technical support near S$1.76. Maintain BUY with an unchanged fair value estimate of S$2.38.

Source: OCBC Research - 13 Oct 2014