• 3Q14 figures within expectations
• Rejuvenating Scotts Square retail
• SG resi headwinds persist

3Q14 results broadly in line

3Q14 PATMI came in at S$11.0m, down 7.2% YoY mostly due to lower progress recognition from Ardmore Three, higher admin expenses and FX losses during the quarter. 3Q14 revenue decreased 17.4% YoY to S$22.8m similarly due to the weaker contributions from Ardmore Three. We judge this quarter’s earnings to be within expectations and 9M14 PATMI now makes up 92.0% of our full year forecast, including the S$109.4 accounting gain in 2Q14 which resulted from moving the group’s stake in Hotel Properties Ltd (“HPL”) from AFS assets to an interest in an associate.

Rejuvenating Scotts Square with stronger brands

Wheelock Place continues to enjoy strong occupancy (99.7% as at end 3Q14) and positive rental reversion over the quarter, with the blended monthly rent now ~S$13.50 psf per month. Scotts Square retail’s occupancy remained flat QoQ at 93% as at end 3Q14, though we note that average monthly rent dipped marginally from ~S$22 psf as at end 2Q14 to ~S$21 psf as at end 3Q14. Management reports that the exercise to rejuvenate the mall with stronger international luxury labels and F&B concepts is in process, and they will roll out advertising and promotion initiatives over the rest of the year to heighten awareness and entice shoppers for festive shopping.

Persistent residential headwinds in Singapore

We note persistent headwinds in the domestic residential sector, particularly in the high-end segment, and the sales status at the group’s Scotts Square residential towers remained stagnant over the quarter with 79% of total units sold (268 units sold out of 338 total units). Management indicates that their current focus is to lease unsold units, and 33 units have been leased to date with average rentals above S$5.2k pm. At Ardmore Three, three units out of the total 84 units have been sold to date (ASP: S$3.2k psf) while the 698-unit The Panorama is now 40% sold (282 units sold). Maintain BUY with an unchanged fair value estimate of S$2.38.

Source: OCBC Research - 17 Nov 2014