Singapore Land - Hospitality business continues to be weak

Due to a net fair value loss on investment properties to the tune of $395.7m, SingLand posted a net loss of$344.7m in 2Q09. However, core operating net profit was in-line with expectations, growing 16% yoy as aresult of positive rental reversion and cost management. No interim dividend was declared.

SingLand suffered a total fair value loss of $492.1m on its investment properties versus six months ago(11%-decline). Such fair value loss is rather academic, as SingLand’s business model seldom involvestrading of the investment properties. SingLand’s businesses are cashflow generative, and on a sequentialbasis, SingLand’s gross revenue from its investment properties remained flat.

The revenue from Pan Pacific Hotel Singapore slumped by 33% yoy due to lower room rates andoccupancy rates, as well as lower F&B revenue. Similarly, associated earnings from Marina Mandarin andMandarin Oriental hotels are also lower. It is also in-line with the overall weak tourism sector, as well as theH1N1 pandemic concerns.

We have lowered our estimated breakeven cost for the Trizon to $1,280 psf, due to lower expectedconstruction costs. However, despite the resurgence of strength in the private property market, we believethat a realistic ASP for the project would be around $1,200 psf, implying that SingLand may still make lossof about $30m from the project.

Both the office and hospitality sectors are likely to remain muted in the near-term, before recovering. At thecurrent price, valuations are not compelling. We are maintaining our HOLD recommendation, with a targetprice of $5.57 at a 30%-discount to its RNAV.

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