• Gross revenue up 2.0% YoY
• Flat REVPAR for MOS, CPCA
• Weak retail performance

1Q16 results in line with expectations

Gross revenue increased 2.8% YoY to S$30.1m, coming up to 21.2% of our full-year forecast. For FY14 and FY15, 1Q contribution stood at 24.7% and 23.5% respectively. DPU fell 31.7% to 1.10 S cents, making up 18.9% of our full-year forecast. Adjusting for the Rights Issue, DPU would have fallen 8.7% to 1.47 S cents. As the CPCA extension (CPEX) comes on board in the middle of the year, we expect a higher DPU contribution from 2H16.

Robust Hospitality results

Hospitality revenue was up 11.5% due to 5.7% higher master lease income from Mandarin Orchard (MOS) and better operating performance as well as a full 3-month contribution from CPCA. The higher income from MOS was partly due to a one-off F&B event. REVPAR for MOS stayed flat, falling 0.4% to S$222, while that for CPCA inched up 2.4% to S$252 on the back of increased demand from the transient segment, which offset the lower demand from the corporate segment.

Decline in Retail contribution due to landlord fit out

Retail revenue suffered a 16.3% decrease due to ~13% of NLA undergoing a landlord fit out period for incoming tenants as well as a lower average occupancy rate. New tenants Michael Kors and Victoria’s Secret are expected to open in mid-3Q16 and end-4Q16 respectively. The average rental reversion was -19% for leases signed in 1Q16, which accounted for 5.8% of NLA. This was partly due to a shift in rental structure with a move towards lower fixed rent and higher variable rent to entice tenants.

Lower FV; Maintain HOLD

Average cost of debt now stands at 2.8% vs. 2.7% as at 4Q15 and 2.5% as at 3Q15. Given the steeper-than-anticipated decline in retail revenue as well as the rate hike environment, we update the parameters of our model. FY16 DPU is expected to come in at 5.3 S cents, down from 5.8 S cents forecasted previously. Our fair value estimate drops from S$0.70 to S$0.67. Maintain HOLD.

Source: OCBC Research - 9 May 2016