SingLand’s 1Q09 net profit of $73.2m (inclusive of a $26.4m writeback of deferred income tax) was a 117% yoy increment. Core profit of $46.7m was a 39% yoy and 14% qoq improvement, at the back of higher rental income, in line with expectations. Total revenue improved by 4% yoy, but declined by 8% qoq, as revenue from hotel operations declined.

Gross rental income of $63.5m grew by 22% yoy, but only 1% qoq. As Grade A office spot rates plunged to an average of $12.30 psf as of the end of March (according to CBRE), the rate of positive reversion has slowed down tremendously. Some tenants at the Singapore Land Tower have reportedly been offered rents of $7 psf. Besides lower rental reversions, we believe that occupancy rates are likely to fall further.

Revenue from Pan Pacific Hotel decreased by 28% yoy and 27% qoq to $21.3m, due to lower room and occupancy rates, as well as lower F&B revenue. Based on the Singapore Tourism Board’s statistics, the average occupancy rate of luxury hotels in March was 70%. We believe that contributions from the hotel operations may remain weak for the rest of 2009.

Given the weakness in the property market, we have lowered our ASP assumption for The Trizon (formerly known as Himiko Court) to $1,100 psf. At an estimated breakeven price of $1360 psf, SingLand may have to make a writedown of about $106m to its holding cost. SingLand continues to recognise associated profits from One Amber and the Sixth Avenue Residences, which are expected to be completed this year.

With the pace of positive rental reversions slowing, coupled with the likelihood of a substantial writedown for The Trizon, there appears to be few positive catalysts in the near-term. We are downgrading it to a HOLD recommendation, with a target price of $3.90 at a 50%-discount to RNAV. Upside risk may come if tourism numbers improve towards 4Q09, brought about by the completion of Marina Bay Sands.