1Q15 PATMI fell 91.8% YoY to S$82.5m mainly due to the absence of divestment gains from the sale of Mandarin Orchard Singapore and Mandarin Gallery to OUE H-REIT recognized in the same quarter last year; but partially offset by a S$57.8m gain on the sale of Crowne Plaza Changi Airport to OUE H-REIT in 1Q15. 1Q15 revenues were mostly flat – up 1.0% YoY to S$108.0m – and we note that gross margins dipped from 56.5% in 1Q14 to 37.4% this quarter due to higher operating costs and recognition of rental expenses of OUE H-TRUST.

We judge these  results to be within expectations; adjusted for one-time gains, 1Q15 core PATMI and revenues constitute 18.8% and 24.7% of our full-year forecast, respectively. The group remains focused on asset enhancement initiatives and active lease management at OUE Downtown and US Bank Tower, which achieved committed occupancy rates of 89.7% and 79.6%, respectively. The extension to Crowne Plaza Changi Airport is expected to be completed by end of 2015 (and no later than Jun 2016) and will be divested to OUE H-REIT subsequently as part of the group’s capital recycling strategy. Maintain BUY with an unchanged fair value estimate of S$2.69 (20% discount to RNAV).

Source: OCBC Research - 11 May 2015